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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-K

 

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the fiscal year ended MARCH 31, 2022
   
  -OR-
   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from ___________ to ___________
   
  Commission File No. 000-55997

 

SHARING SERVICES GLOBAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada   30-0869786
(State or other jurisdiction of incorporation or   (I.R.S. Employer Identification No.)
organization)    
     
1700 Coit Road, Suite 290, Plano, Texas   75075
(Address of principal executive offices)   (Zip Code)

 

 

Registrant’s telephone number, including area code: (469) 304-9400

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 par value per share

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined under Rule 405 of the Securities Act. YES ☐ NO

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO

 

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 ☐

 

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth 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     Smaller reporting company
      Emerging growth company

 

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 Section13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) YES ☐ NO

 

As of October 31, 2021, the aggregate market value of the registrant’s voting and non-voting Common Stock held by non-affiliates of the registrant, based on the closing price for the registrant’s Common Stock, was $4,370,560. As of June 10, 2022, there were 288,923,969 shares of the registrant’s Common Stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the Proxy Statement related to the registrant’s 2022 Annual Meeting of Stockholders are incorporated into Part III of this Annual Report by reference where so indicated.

 

 

 

 
 

 

TABLE OF CONTENTS

 

   

Page

 

PART I

 
     
ITEM 1. BUSINESS 1
ITEM 1A. RISK FACTORS 7
ITEM 1B. UNRESOLVED STAFF COMMENTS 17
ITEM 2. PROPERTIES 17
ITEM 3. LEGAL PROCEEDINGS 17
ITEM 4. MINE SAFETY DISCLOSURES 18
     
 

PART II

 
     
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 19
ITEM 6. [RESERVED] 19
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 61
ITEM 9A. CONTROLS AND PROCEDURES 61
ITEM 9B. OTHER INFORMATION 61
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 61
     
 

PART III

 
     
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 62
ITEM 11. EXECUTIVE COMPENSATION 62
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 62
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 63
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 63
     
 

PART IV

 
     
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 64
ITEM 16. FORM 10-K SUMMARY 65

 

ii
 

 

In March 2021, the Company changed its fiscal year-end from a fiscal year ending on April 30th to a fiscal year ending on March 31st. In this Annual Report, references to “the Company,” “Sharing Services,” “our company,” “we,” “our,” “ours” and “us” refer to Sharing Services Global Corporation (formerly Sharing Services, Inc.) and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.

 

cautionary notice regarding forward-looking statements

 

Statements in this Annual Report and in any documents incorporated by reference therein which are not purely historical, or which depend upon future events, may constitute 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”). Forward-looking statements generally contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “potential,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “will likely,” “would,” or the negative of such words and/or similar expressions. However, not all forward-looking statements contain these words.

 

Readers should not place undue reliance upon the Company’s forward-looking statements, since such statements speak only as of the date they were made. Such forward-looking statements may refer to events that ultimately do not occur, or may occur to a different extent, or occur at a different time than such forward-looking statements describe. Except to the extent required by federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements contained in this Annual Report and in any documents incorporated by reference therein, whether as a result of new information, future events, or otherwise. The Company acknowledges that all forward-looking statements involve risks and uncertainties that could cause actual events and/or results to differ materially from the events and/or results described in the forward-looking statements.

 

iii
 

 

PART I

 

ITEM 1. BUSINESS.

 

Sharing Services Global Corporation (“Sharing Services”) and its subsidiaries (collectively, the “Company”) aim to build shareholder value by developing or investing in innovative emerging businesses and technologies that augment the Company’s products and services portfolio, business competencies, and geographic reach.

 

In March 2021, Sharing Services changed its fiscal year-end from a fiscal year ending on April 30th to a fiscal year ending on March 31st. In connection with this change, the Company decided not to restate the information reported for prior accounting periods, because: (a) the Company’s businesses are not inherently seasonal, (b) the change in fiscal years did not otherwise materially distort comparability of the Company’s results of operations and cash flows, and (c) the cost to restate the data reported for prior periods outweighs the usefulness of such restated data. Accordingly, the consolidated financial statements included herein reflect the results of operations and cash flows for the fiscal year ended March 31, 2022 (365 days) compared to the eleven months ended March 31, 2021 (335 days). The Company’s Common Stock is traded, under the symbol “SHRG,” in the OTCQB Market, an over-the-counter trading platforms market operated by OTC Markets Group Inc.

 

Our History

 

Sharing Services was originally incorporated under the name Sharing Services, Inc. on April 24, 2015. In December 2017, the Company, through its U.S.-based subsidiaries, launched its Elevate brand of health and wellness products.

 

In January 2019, Sharing Services, Inc. changed its corporate name to Sharing Services Global Corporation to better reflect the Company’s strategic intent to grow its business globally. In connection with the name change, the Company adopted the trading symbol SHRG effective April 4, 2019. Prior to this, the Company’s Common Stock traded under the trading symbol SHRV.

 

In February 2021, the Company rebranded its product offerings under the new marketing banner, “The Happy Co TM,” to capitalize on its vision that Everyone Deserves to be Happy. As part of this business initiative, the Company updated its customer messaging to re-emphasize the Company’s core values, including, among others: “harnessing the power of happiness;” “offering products you love;” “achieving more together;” and “offering products by people, for people.”

 

In June 2021, the Company expanded its geographical footprint, and through its wholly owned subsidiary, commenced operations in the Republic of Korea (South Korea).

 

Strategic 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 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.

 

Key Global Industry and Business Trends

 

We believe the following industry and business trends will provide opportunities for the Company to grow its business in a sustained manner in the future:

 

The Global direct selling industry is strong. According to the World Federation of Direct Selling Associations (“WFDSA”), worldwide industry sales exceeded $179 billion in 2020, with the Americas and Asia accounting for more than $141 billion in sales.

 

Global interest in direct selling is strong. According to the WFDSA, the worldwide direct selling industry salesforce has grown from 114 million in 2016 to 125 million in 2020, an increase of 10%.

 

The U.S. direct selling industry is growing strongly. For example, total industry sales in the U.S. grew from $28.6 billion in 2010 to $40.1 billion in 2020, an increase of 40%, according to the U.S.-based Direct Selling Association (“DSA”).

 

Interest in direct selling in the U.S. has grown in recent years. The number of direct sellers in the U.S. grew from 6.2 million in 2018 to 7.7 million in 2020, an increase of 24%, according to the DSA.

 

Consumer attitudes to direct selling continue to be favorable. The results of a consumer attitude survey released by the DSA show that 80% of consumers consistently gave the direct selling industry a positive rating during the past 10 years.

 

The level of interest in the direct selling industry is high among younger sectors of the population. Over 70% of the people involved in direct selling, in the U.S. and worldwide, were between the ages of 20 and 54, according to the WFDSA and the DSA. By comparison, the U.S. Census Bureau estimates that persons in this age group make up about 46% of the overall 2020 U.S. population.

 

1

 

 

Participation in the industry by women is high. For example, women made up approximately 74% of the people involved in direct selling in 2020, in the U.S. and worldwide, according to the WFDSA and the DSA. By comparison, the U.S. Census Bureau estimates that women make up about 51% of the overall 2020 U.S. population.

 

Wellness products are the largest sector in the industry. Wellness products (such as our Elevate product line), accounted for over 36% of the industry’s sales in 2020, in the U.S. and worldwide, according to the WFDSA and the DSA.

 

The initial costs and business risks in direct selling are relatively lower. According to “2020 Consumer Attitudes & Entrepreneurship Study,” published by the DSA, the required start-up costs and business risks associated with direct selling in the U.S. are lower than those for most competing entrepreneurial business opportunities.

 

Business Segments, Geographic Area Information and Seasonality

 

The Company currently operates in two business segments: (a) the sale of health and wellness products through an independent sales force and (b) the sale of other products and services, including third-party skincare products, and services sold on a subscription basis. During the fiscal years ended March 31, 2022, and 2021, substantially all and approximately 97%, respectively, of the Company’s consolidated sales were from its health and wellness products.

 

During the fiscal years ended March 31, 2022, and 2021, 87% and 94%, respectively, of the Company’s consolidated sales were made to customers and independent contractor distributors located in the United States (the “U.S.”). See Note 19 - “BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION” of the Notes to Consolidated Financial Statements contained in Item 8 “Financial Statements and Supplementary Data” of this Annual Report for more details.

 

While the Company’s business generally is not highly seasonal, sales activity is normally slower during November and December, when many customers and independent contractor distributors in the U.S. traditionally take a holiday break.

 

Competition

 

The health and wellness products industry is highly competitive and growing, and there are few barriers to entering the industry. Our competitors include a wide range of retailers, including traditional retail stores that offer their products in “brick and mortar” outlets and/or online, and e-commerce-based retailers. These retailers include, among other, CVS Health Corporation (Pharmacies), GNC Holdings (a specialty retailer), Target Corporation, The Vitamin Shoppe, Walgreens Boots Alliance (Pharmacies) and Walmart.

 

The direct selling industry is highly fragmented and competitive, and there are few barriers to entering the industry. We compete with other direct selling businesses, including many that have a longer operating history, higher visibility and name recognition, and more financial resources than we do. Among others, these network marketing companies include Amway Corporation, Avon Products, Herbalife Nutrition, Mary Kay, Nature’s Sunshine Products, The Body Shop, Nu Skin Enterprises and Youngevity International.

 

We compete in these marketplaces by emphasizing differentiators such as our access to exclusive products and ingredients, the quality and efficacy of our product offerings, the reliability and convenience of our distribution system, and a personalized customer service experience. We offer products and services that aim to improve the health and happiness of our customers and distributors. In addition, our direct selling business model, provides our independent contractor distributors the opportunity to build wealth by growing and operating of their own distribution business.

 

We also compete with other direct selling organizations in our efforts to attract and retain our independent contractor distributors by emphasizing the strengths of our product line, entrepreneurship and leadership training, a comprehensive sales compensation plan, a strong marketing focus, positive corporate values, and strong management leadership.

 

Competitive Strengths

 

We believe the following competitive strengths differentiate us from our competitors and will help drive our future growth:

 

A strong management team consisting of senior and middle management professionals with significant direct selling industry and global business experience.

 

A strong financial foundation, including cash and cash equivalents of $17.0 million and $12.1 million as of March 31, 2022, and 2021, respectively.

 

An exclusive line of Nootropic products sourced through one or more exclusive strategic partnerships and not available through traditional sales channels.

 

Best in class marketing process that focuses on the nutritional value and/or other health benefits of our health and wellness products.

 

Our ability to offer our industry-exclusive brands directly to consumers using a friendly, highly trained entrepreneurial sales force.

 

Our 30-day, “full customer satisfaction or your money back” product return policy.

 

2

 

 

International Reach

 

During our fiscal year ended March 31, 2022, sales to customers and independent contractor distributors located in the U.S. accounted for approximately 87% of consolidated sales and sales to customers located in Korea were approximately 5%. In addition, the Company distributes its products from the U.S. to customers located in Canada, Australia, New Zealand and other countries.

 

In June 2021, the Company, through its wholly owned subsidiary, commenced operations in the Republic of Korea (South Korea). During our fiscal year ended March 31, 2022, 95% of our sales were denominated in U.S. dollars. Prior to our fiscal year ended March 31, 2022, substantially all the Company’s sales to customers were denominated in U.S. dollars.

 

Our Health and Wellness Product Line

 

The Company launched its current health and wellness product line, under the name Elevate, in 2017. In 2021, we rebranded our products under The Happy Co trademark. The Company’s health and wellness product line consists of Nootropics, natural products aimed at improving the health and happiness of its customers and distributors. We aim to grow health and wellness product offerings by developing, acquiring, and introducing new products and services. In each of the fiscal years ended March 31, 2022, and 2021, substantially all and approximately 97%, respectively, of the Company’s consolidated sales were from its health and wellness products.

 

Key Products

 

We purchase our proprietary and non-proprietary products from independent formulators and manufacturers who specialize in wellness and skincare products. We take pride in our commitment to offer the finest products in the industry, including, but not limited to:

 

Health & Wellness Products

 

Elevate MAX® Happy Coffee – A delicious 100% Arabica coffee drink with a combination of at least five powerful mood-enhancing ingredients and a non-stimulant thermogenic agent, p-synephrine, known to increase the breakdown of fats. When combined with XanthoMax®, Elevate MAX® coffee completes the set of four hormones that are associated with happiness.

 

XanthoMax® Happy Caps – An encapsulated wellness supplement designed to deliver Xanthohumol, a powerful antioxidant, and Turmeric. Xanthohumol is a natural ingredient that helps the body release elevated amounts of Oxytocin, commonly referred to as the “hormone of happiness.” When combined with any of the Company’s functional beverages XanthoMax® completes the set of four hormones that are associated with happiness.

 

Elevate NITRO® Bold Coffee – A delicious 100% Colombian Arabica coffee drink that blooms with a bold, aromatic body and promotes energy, focus, motivation and muscle-pumping nitric oxide using naturally extracted polyphenols. When combined with XanthoMax®, Elevate NITRO® coffee completes the set of four hormones that are associated with happiness.

 

Elevate Smart Coffee™ - A delicious micro-ground, functional coffee drink that contains a proprietary blend of Nootropic ingredients designed to assist with mental clarity, memory and energy. This beverage provides neuro-transmitter hormone creators for three of the hormones associated with happiness. When combined with XanthoMax®, Elevate Smart Coffee completes the set of four hormones that are associated with happiness.

 

KetoCre® Keto Creamer- A delicious Ketogenic creamer designed to support a healthy Keto diet, and a great addition to any weight management program.

 

Choclevate® Happy Chocolate – A delicious, Nootropic-infused hot chocolate drink designed to assist in the elevation of mood, mental focus and energy. A unique combination of natural nootropics delivers the kind of “happy” that doesn’t stop after the delicious taste goes away. When combined with XanthoMax®, Choclevate® completes the set of four hormones that are associated with happiness.

 

Elevate ZEST® Happy + LemonadeA refreshing, potent Nootropic blend with a smooth lemonade twist and a proprietary blend of natural Nootropic ingredients designed to assist with mental clarity, memory, and energy. When combined with XanthoMax®, Elevate ZEST® completes the set of four hormones that are associated with happiness.

 

ElevaciTea® Georgia PeachA flavorful, Southern-style tea that delivers natural Georgia Peach flavor in every sip. ElevaciTea® Georgia Peach is a perfect afternoon pick-me-up with a proprietary blend of Nootropic ingredients designed to assist with mental clarity, memory, and energy.

 

ElevaciTea® Vanilla ChaiA flavorful afternoon pick-me-up, ElevaciTea® Vanilla Chai is a creamy, spiced black tea with a proprietary blend of Nootropic ingredients designed to assist with mental clarity, memory, and energy.

 

Fit & Happy Shake– A high-protein, delicious instant shake available in two flavors: vanilla and mocha. Fit & Happy Shakecombines vitamins with pre and probiotics and is a great way to optimize your weight management regiment.

 

3

 

 

All-in-One Happy Shake– A “birthday cake” flavored shake that combines nutrient-dense fruit and veggies with high-quality protein, antioxidants and plant fiber. This Keto-friendly shake has everything you need to feel great and complement your weight loss regiment.

 

Optimal Probiotic 8™ – A healthy dietary supplement containing eight different strains of beneficial probiotics, prebiotics and postbiotics. A healthy microbiome is essential for weight loss, good mood, deep sleep, productive energy, healthy skin, and a balanced immune system.

 

Extreme Energy Patch – An easy application patch designed to sustain a clear, focused stream of energy throughout the day.

 

Skincare Products

 

Age-Defying Intensive Repair Serum - An age-defying serum that can help you restore the appearance of healthy and glowing skin. Our proprietary Synchronized Peptide ComplexTM has been stabilized through a patented process to deliver outstanding results. This potent serum locks in moisture to help restore the skin’s youthful look.

 

Ultimate Revitalizing Cream - A rich, anti-aging cream that helps illuminate and firm up the skin. Our proprietary Synchronized Peptide ComplexTM has been stabilized through a patented process to deliver outstanding results. This luxurious cream helps the skin retain moisture and improve skin texture, for a firm and radiant looking skin.

 

Sales and Marketing

 

We rely on a direct selling model consisting of independent contractor distributors and on customer referrals to promote and sell a majority of our products. We believe this is an effective selling model since our independent contractor distributors can educate consumers about our products in person, provide testimonials, and provide higher levels of customer support, compared to more traditional selling models. The Company also markets and sells its products and services using its proprietary websites, including: www.elevacity.com and www.thehappyco.com.

 

We provide support to our independent contractor distributors with marketing content, websites, events, and technology. We offer our products online and provide our independent distributors with a virtual online Back Office website. This website is where independent distributors can manage, monitor, and operate their businesses 24 hours a day from any location. In addition, we actively communicate with our independent distributors about new products, price changes, policy changes, recruiting opportunities, sales promotions, and other important matters via electronic mail, by phone and during our sales conventions. Sales conventions are currently held once or twice a year and are attended or viewed digitally by a significant number of our current independent distributors and prospective independent distributors. Each sales convention includes the participation of one or more key personalities, including social media influencers, engaged in promoting our products and services. In addition, each sales convention is attended by members of our executive team, providing an opportunity for our sales force to learn about new business initiatives, new products, and other matters relevant to their businesses.

 

As part of our efforts to protect our customers, distributors, employees, and other business partners during the recent COVID pandemic, in 2020, the Company transitioned its sales conventions to a digital format only. In 2022, the Company resumed holding in-person sales events and conventions when it is safe to do so. The Company anticipates resuming the use of all sales conventions in person in the foreseeable future, as the threat of the health emergency fully subsides.

 

Product Distribution

 

Currently, distribution and delivery of our products in the U.S., Canada, and the southern Pacific region is handled primarily by our distribution center in Addison, Texas. On the other hand, sales, distribution, and delivery of our products in Asia is handled by our South Korean subsidiary.

 

We intend to grow, in part, by also offering and distributing our products to customers in additional geographic areas outside the U.S. As product sales reach critical mass levels, we anticipate expanding distribution of our products by facilities, including facilities operated by independent logistics partners, located outside the U..S.

 

Retail Customers and Independent Contractor Distributors

 

The Company distributes its products through two distribution channels: (1) sales to our retail customers – consumers that buy our products from a distributor or through one of our websites, for personal use and (2) sales to our independent contractor distributors that buy product for resale or for personal use. The Company’s goal is to monitor and grow both sales channels using different strategies. To grow our retail customer base, we offer high-quality, unique products. Our strategy for growing our sales force of independent distributors includes providing a meaningful business opportunity to them, a competitive sales compensation plan, sales incentives, and volume-based bonuses, as further discussed below.

 

Any person may join the Company as a distributor, or Brand Partner, by purchasing a Virtual Business System (“VBS”) for $49.00. This kit includes the training and basic marketing materials which better enables our sales force to sell our products and build their organization. Independent distributors may then purchase products for personal use or to build their sales organization. No product purchases are required upon enrollment.

 

4

 

 

Distributor Agreement and Compensation

 

Our distributors are independent contractors, and the Company does not direct or control their efforts. However, the Company requires its distributors to abide by its policies and procedures, and to comply with all applicable laws and regulations. To become a distributor an individual must affirmatively accept our standard Distributor Agreement as well as our Distributor Policies and Procedures. These documents govern the relationship between the Company and each independent distributor. The Distributor Policies and Procedures outline the scope of permissible marketing activities, and the Distributor Agreement defines the relationship between the distributor and the Company. Our policies and procedures require that our distributors present our products, as well as the business opportunity, both ethically and professionally.

 

We believe that our compensation plan offers our independent distributors an exciting and effective way to earn commissions. All our distributors can earn commissions when they sell our products to their retail customers or their downline independent distributors. Additionally, they can earn commissions when their own personally sponsored distributors (or downline) sell products to end users. There is no limit as to the number of personally enrolled distributors or retail customers that an independent distributor may have.

 

Each distributor begins by purchasing a VBS. The VBS includes the training and basic marketing materials which better enables our sales force to sell our products and build their organization. No commissions or bonuses are paid for enrolling other distributors.

 

Additionally, each month, our top producing distributors may also earn commission based on the sales levels achieved by such distributor and his/her downline. This bonus commission is designed to compensate them for mentoring, training, and developing the distributors in their downline.

 

The Company’s compensation plan is designed to promote customer acquisition and retention. The Company provides a back-office website for our independent distributors to use in their ecommerce sales, but an affiliate may also sell directly to their customers.

 

We rely upon our independent distributors to create customer demand and sales. We believe our plan is successful in helping to attract and motivate our sales force and key industry leaders. Please see ITEM 1A. – “RISK FACTORS” – “The dependence of some of our subsidiaries upon a direct selling business model to sell our products, and the highly competitive and dynamic nature of the direct selling industry” and “Our subsidiaries’ ability to attract and retain independent distributors; the ability of a distributor to successfully perform his or her role; and the potential adverse impact of the loss of a high-level distributor or a significant number of distributors for causes out of our subsidiaries’ control” below for more information.

 

Full Customer Satisfaction Product Return Policy

 

If a consumer is not completely satisfied with the products they purchased, we offer a full refund, or exchange of the product, for items returned within 30 days from the date of purchase. For products purchased by our independent distributors, we also offer a generous product return policy that allows our distributors to get full credit for unopened and resalable items returned for up to 30 days from the date of purchase, generally subject to a customary restocking fee.

 

Trademarks and Other Intellectual Property

 

We have obtained 22 trademark registrations issued by the United States Patent and Trademark Office. We anticipate obtaining additional U.S. trademark registrations in the future, in connection with the 34 applications presently pending.

 

In addition, we intend to file for trademark protection in jurisdictions outside the U.S. where we market and distribute or intend to market and distribute our products, including, among others, in Canada, Australia, New Zealand, South Korea, Singapore, Malaysia, Japan, Thailand, and the Philippines. Trademark protection is increasingly important to our growing business.

 

Several of our products are manufactured under formulations and processes owned by some of our key vendors. Some of our key vendors have registered or applied for patent registrations to maintain exclusivity over the ingredients, formulation and processes, and the integrated products they supply to us. Such potential patents, the underlying ingredients, formulation and processes, and integrated products are material to the Company’s business. The Company reserves the right to join in any future actions to defend against any infringement on such patents that could adversely affect the products the Company sells. If our vendors and us were unsuccessful in protecting such intellectual property rights, this could have a material adverse effect on our business. Please see ITEM 1A. – “RISK FACTORS” – “Our dependence on one supplier for a substantial portion of the products we sell and the potential for material disruptions in our supply chain or potential increases in the prices of the products we purchase beyond what we can pass along to our customers” below for more information.

 

To protect our own intellectual property and proprietary processes that are material to the long-term health and profitability of the Company, we maintain disciplined business practices to manage trade secrets and use various forms of confidentiality and non-disclosure agreements. We consider trademark protection to be very important to our business and utilize an internal compliance team to closely monitor the usage of our intellectual property. Please see ITEM 1A. – “RISK FACTORS” – “The success of our efforts to register our trademarks and to protect certain intellectual property rights” below for more information.

 

5

 

 

Strategic Supply Chain Partnerships

 

We strive to maintain positive relationships with key business partners to ensure the continuous manufacturing, supply, and quality of our products. In the fiscal year ended March 31, 2022, and 2021, product purchases from one supplier accounted for 64% and 99%, respectively, of our product purchases. Please see ITEM 1A. – “RISK FACTORS” – “Our dependence on one supplier for a substantial portion of the products we sell and the potential for material disruptions in our supply chain or potential increases in the prices of the products we purchase beyond what we can pass along to our customers.”

 

We intend to grow, in part, by also offering and distributing our products to customers in geographic areas outside the U.S. As product sales reach critical mass levels, we anticipate expanding manufacturing and distribution of our products by facilities, including facilities operated by independent logistics partners, located outside the U.S.

 

Regulatory Environment

 

Our business is regulated by various federal, state, and local governmental agencies in the U.S. and by similar agencies in Canada and other jurisdictions in which we market and sell our products. These laws and regulations are related to: (a) the manufacturing, labeling, distribution, and sale of our products; (b) product claims and advertising; and (c) our network marketing program.

 

Regulation of Direct Selling Activities

 

In the United States, direct selling programs are subject to a variety of federal and state regulations governed by the United States Federal Trade Commission (the “FTC”) or a similar state agency. These regulations are generally intended to protect consumers from fraudulent or deceptive sales practices. They also ensure that product sales are made to the ultimate consumers and that compensation within the organization is made based upon actual sales transactions, rather than upon recruitment into the organization.

 

The Company monitors and, if necessary, responds to regulatory developments that may adversely affect its network marketing program. We believe the Company is in material compliance with all applicable laws and regulations relating to direct selling activities in the United States and other countries where we operate.

 

Regulation of Personal Care and Nutritional Food Products

 

Personal care and nutritional food products (including the products we sell) and certain related marketing and advertising practices are subject to governmental regulation by various federal, state, and local government agencies and other authorities in the U.S., Canada, and other jurisdictions where we market and distribute or intend to market and distribute our products in the future. These agencies and authorities include the U.S. Food and Drug Administration (the “FDA”), the FTC, the Consumer Product Safety Commission, the U.S. Department of Agriculture, and various similar state and Canadian regulatory agencies. To date, we have not experienced any governmental actions related to health or safety, or food and drug regulations regarding our products.

 

The FDA regulates both finished dietary supplement products (including health and wellness products such as ours) and dietary ingredients. Dietary supplements are specifically regulated under the Dietary Supplement Health and Education Act of 1994 (the DSHEA). Under the DSHEA, manufacturers and distributors of dietary supplements are prohibited from marketing products that are adulterated or misbranded. Generally, such regulations apply prior to a product reaching the market. Once a product reaches the market, the FDA is responsible for taking enforcement action against any product found to be an adulterated or misbranded dietary supplement. Unlike medications, dietary supplements and dietary ingredients, such as those sold by the Company, do not require FDA approval before such products can be marketed and sold.

 

The FTC, which enforces consumer protection laws regarding truth in advertising, and similar state and foreign agencies regulate how we advertise and market our products. The U.S. Consumer Product Safety Commission, and similar state and foreign agencies, seek to protect the public from unreasonable risks of injuries or death associated with consumer products. In the U.S., Canada and other jurisdictions where we operate, our products are also subject to laws and regulations concerning product formulation, labeling and packaging. These laws and regulations often require us to, among other things, conform product labeling to local language and content description requirements, register or qualify the products with the applicable government authorities, or obtain approvals or file required notifications prior to marketing such products within certain jurisdictions. Many of the jurisdictions where we operate also regulate product capability claims and advertising content. These regulations control the type of claims and representations that can be made regarding the capabilities of products. For example, in the United States, it is unlawful to make claims that nutritional supplements will help diagnose, cure, mitigate, treat, or prevent disease. Please see ITEM 1A. – “RISK FACTORS” – “Our ability to comply with current consumer product laws and regulations or our becoming subject to new or more stringent consumer product laws and regulations in the future” below for more information.

 

6

 

 

Employees

 

As of March 31, 2022, and 2021, the Company employed 68 and 76 persons, respectively, as follows:

 

Location  2022   2021 
United States   58    68 
Asia   10    8 
Total   68    76 

 

The amounts above do not include the Company’s approximately 13,000 distributors who are independent contractors. Our employees are not represented by labor unions. We believe that our relationship with our employees is positive, and we do not expect a shortage in qualified personnel to continue our business growth.

 

Access to Public Filings

 

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to such reports, are available to any person, without charge, upon written request to our Investor Relations Department at 1700 Coit Road, Suite 290, Plano, Texas 75075. You may also access copies of such reports, and other information about the Company, by visiting our corporate website: www.shrginc.com.

 

In addition, the SEC maintains a website that contains any reports and other information that we file with the SEC: www.sec.gov.

 

ITEM 1A. RISK FACTORS

 

Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, and cash flows. If any of these events occurs, the market price of our Common Stock could decline, and you could experience the loss of all or a portion of the value of your investment in our Common Stock. You should not draw any inference about the relative magnitude or relevance of any particular risk from its position in the following discussion.

 

A - Risks Associated with the Direct Selling Business Model:

 

The dependence of some of our subsidiaries upon a direct selling business model to sell our products, and the highly competitive and dynamic nature of the direct selling industry.

 

Our subsidiaries operating in the direct selling industry market and distribute our products and services through a sales force of independent contractor distributors. The distribution of our products and services depends upon their continued efforts to recruit, train, and retain qualified and effective independent distributors. The success of their efforts to recruit and retain distributors may be affected by the competitive environment among direct-to-consumer companies, the conditions of the general labor market, including levels of employment, the occurrence of demographic and cultural changes in the workforce, and the extent to which their brand is recognized in the geographies in which they operate. There can be no assurance that our subsidiaries will be successful in recruiting and retaining enough independent distributors to grow their business worldwide.

 

The direct selling industry worldwide is highly competitive and dynamic, and generally there are few barriers to entering the industry. In addition, the sale of health and wellness products by direct selling industry participants, online resellers, and others is highly competitive. There are several companies, including many with more resources than the Company, that offer competing health and wellness products. The primary competitive factors for health and wellness products are (a) price; (b) the quality, perceived value, brand recognition and package appeal of the product; (c) the skills and effectiveness of the independent distributor and customer service staff interacting with the customer or potential customer; and (d) the continuous availability of enough product to fulfill orders promptly. There can be no assurance that our subsidiaries will remain competitive or that competition in the industry will not intensify.

 

If our subsidiaries do not remain competitive and promptly and effectively respond to increased competition, including competition for independent distributors, and to marketplace changes in the future, future sales of our products and services could decline. This could have a material adverse effect on our consolidated financial condition, results of operations and cash flows.

 

7

 

 

Our subsidiaries’ ability to attract and retain independent distributors; the ability of a distributor to successfully perform his or her role; and the potential adverse impact of the loss of a high-level distributor or a significant number of distributors for causes out of our subsidiaries’ control.

 

Our subsidiaries operating in the direct selling industry depend on the skills and marketability of their independent distributors to promote their brand and to market and distribute our products and services. The direct selling industry generally experiences a relatively high rate of salesforce turnover and is very competitive. The success of our subsidiaries’ efforts to recruit and retain distributors may be affected by the competitive environment among direct-to-consumer companies, the conditions of the general labor market, including levels of employment, the occurrence of demographic and cultural changes in the workforce, and the extent to which our subsidiaries’ brand is recognized in the geographies in which they operate. Our subsidiaries’ inability to attract and retain qualified distributors in the future, the inability or failure of a distributor to fulfill his or her role, including his or her role to comply with all laws and regulations applicable to direct-to-consumer sales activities, the ineffectiveness of a distributor as a spokesperson for our subsidiaries’ brand and products, or the loss of a high-level distributor or a significant number of distributors for causes out of their control may adversely affect future sales of our products and services. This could have a material adverse effect on our consolidated financial condition, results of operations and cash flows.

 

Changes to our subsidiaries’ sales compensation plan could be negatively perceived by members of their independent sales force, could fail to achieve the desired long-term goals, and could adversely impact future sales.

 

Some of our subsidiaries operating in the direct selling industry modify aspects of their sales compensation plan from time to time in efforts to keep their sales compensation plan competitive and attractive to their existing and future sales force, to address changing market conditions, to provide incentives that they believe will help grow their business, and to ensure conformance with evolving government regulations, among other reasons. In addition, our subsidiaries may be required to modify their sales compensation plan from time to time to comply with existing or new regulations in the future, including in response to potential governmental enforcement action. Changes to our subsidiaries’ sales compensation plan, including changes perceived to reduce sales commissions earned by their independent sales force, could be negatively received by their sales force, could fail to achieve the desired long-term goals, and could adversely impact future sales. This, in turn, could adversely affect our consolidated business, financial condition, results of operations and cash flows.

 

Certain of our subsidiaries may be held responsible for certain taxes or assessments relating to the activities of their independent distributors.

 

The success of our subsidiaries operating in the direct selling industry depends on the effective use of an independent sales force to market and distribute our products and services. Our subsidiaries’ business activities and the activities of their independent distributors are subject to various local, state, and national laws and regulations and, in some instances, governmental agencies may seek to impose on our subsidiaries an obligation to collect taxes, such as sales or value-added tax, to maintain appropriate tax records, or to otherwise ensure compliance with local, state, or national laws and regulations by their distributors. In addition, some jurisdictions may challenge a company’s classification of its distributors as independent contractors and seek to make the company pay additional compensation to its distributors or seek to make the company responsible to withhold and remit payroll and similar taxes with respect to compensation paid to its distributors or with respect to the activities of its distributors. For example, in 2020, the State of California passed legislation which seeks to expand the classification of employees. Other states and other jurisdictions where we operate, now or in the future, may pass similar laws or interpret existing laws, rules, and regulations to expand the classification of employees. Although the California legislation provides an exemption for direct sellers, such as the Company’s subsidiaries operating in the direct selling industry, there can be no assurance that other jurisdictions where we operate now or in the future will provide a similar exemption or that judicial or regulatory authorities will not assert interpretations of law that would mandate that we change our classification. In the event that any governmental agency challenges the classification of our subsidiaries’ distributors as independent contractors or otherwise seeks to make our subsidiaries responsible to withhold and remit payroll or other taxes in connection with the activities of their independent distributors, we may incur significant costs and expenses to defend us and our subsidiaries from such actions, with no assurance that we will prevail, and our subsidiaries may ultimately be held responsible for such taxes in those jurisdictions in the future. The occurrence of any of these conditions could have a material adverse effect on our consolidated business, financial condition, results of operations and cash flows.

 

Civil or governmental challenges to our subsidiaries’ direct selling system or independent distributor policies could harm our business.

 

The direct-to-consumer industry is subject to extensive governmental scrutiny, including as a result of various national, state, and local laws and regulations. For example, in the U.S., the FTC has actively warned several direct selling companies, and the industry as a whole, about certain business practices associated with direct selling and has entered into settlements with several direct selling companies that required those companies to modify their compensation plans and business models. Those settlements resulted from FTC enforcement actions involving a variety of alleged violations of consumer protection laws, including allegations of earnings potential misrepresentations and challenges about the legal validity of the distributor compensation plans and business models. Elements of the network marketing system or distributor policies of some of our subsidiaries may also be challenged by third parties, including their independent distributors, by competing direct-to-consumer companies, and by others.

 

In the countries where we operate, the direct selling industry relies on the implementation of distributor rules and policies designed to protect consumers, prevent inappropriate sales activities and marketing practices, and distinguish between legitimate direct selling distribution systems and unlawful pyramid schemes. We and our subsidiaries have adopted formal rules and policies that we believe are consistent with best domestic and global direct-to-consumer industry standards. The laws and regulations covering the direct selling industry, however, often involve a high level of subjectivity and are subject to judicial interpretation. Because of this, there can be no assurance that elements of our subsidiaries’ network marketing system, including representations made by their independent distributors, or elements of their distributor policies will not be challenged in civil or governmental actions, or that the application and interpretation of laws or regulations governing the direct-to-consumer industry in the future would not be harmful to our subsidiaries’ business. The occurrence of any of these conditions could have a material adverse effect on our consolidated business, financial condition, results of operations and cash flows.

 

8

 

 

B – Risks Associated with our Growing Business:

 

The success of our growth initiatives, including our efforts to attract new customers, build brand awareness, and expand into international areas, and our efforts to generate recurring customer orders, which we call “SmartShip” orders.

 

Our long-term success is dependent on our ability to achieve sustained growth. We are a developing company and had no significant sales history prior to December 2017, when our U.S.-based subsidiaries launched their Elevate health and wellness product line. During the period from December 2017 through October 2019, our consolidated sales increased at a fast pace. During the following three years, however, we have experienced sales declines or stagnation. In efforts to restore growth, in the fourth quarter of our fiscal year ended March 31, 2021, we launched a multipronged growth strategy intended to accelerate sales growth, including by: (a) expanding our product offerings in the U.S., (b) initiating operations in countries like South Korea, Singapore, Malaysia, Japan, Thailand, and the Philippines, among others, and (c) launching our previously announced membership-based consumer travel products line worldwide. In addition, we have made significant investments in developing and launching a new business brand, “The Happy Co.,” in February 2021, in the U.S. There can be no assurance that these strategic initiatives will result in the consolidated sales growth we anticipate, or any sales growth at all, which could have a material adverse effect on our consolidated business, financial condition, results of operations and cash flows.

 

Our ability to anticipate and effectively respond to changes in consumer preferences and buying trends in several countries in a timely manner.

 

Our success depends in part on our ability to anticipate, evaluate, and respond in a timely manner to changes in consumer preferences and buying trends, particularly for health and wellness products, in the countries we operate. We anticipate that continuously changing consumer preferences and buying trends will affect future worldwide demand for health and wellness products, and other consumer products and services. If we do not effectively identify and respond in a timely manner to evolving consumer preferences and buying trends, including consumer demands for health and wellness products and services, our consolidated business, financial condition, results of operations and cash flows may be adversely affected.

 

Our ability to maintain a positive image and brand acceptance in the dynamic, highly competitive, and sometimes unpredictable marketplace, including the impact of social media.

 

In recent years, there has been a significant increase in the use by businesses of social media platforms, including informal blogs, social media websites, and other forms of internet-based communications. Social media can enable a business to reach a wide selection of consumers and other targeted audiences, generally in a more cost-effective way than more traditional forms of marketing and advertising. However, negative, inaccurate, or false information about a company or the products it sells may be circulated through social media quickly and may damage a company’s reputation and business. In addition, negative, inaccurate, or false information about a company or the products it sells may be circulated through more traditional communication means. Many consumers and independent distributors of direct-to-consumer companies value readily available information and often act on such information without further investigation. The harm caused by the circulation of negative, inaccurate, or false information about a company or its products may be immediate, and opportunities to redress and correct the information may be slow and costly. If we were the victim of allegations, or the dissemination of negative, inaccurate, or false information, circulated through social media or otherwise, this could adversely impact our reputation and business and could result in the loss of independent distributors and in a decline in our future sales.

 

The Company also uses social media platforms, including Facebook and Instagram, to communicate with existing and prospective customers, independent distributors, vendors, and employees, and to otherwise promote its products and services. Laws and regulations intended to govern the use of the Internet and social media platforms are complex and evolving. If we, our employees, our subsidiaries’ independent distributors, or other third parties acting on our behalf were found to be in violation of any of these laws and regulations, this could result in fines and enforcement actions and adversely impact our reputation and business.

 

The occurrence of any of these conditions could have a material adverse effect on our consolidated business, financial condition, results of operations and cash flows.

 

Our dependence on one merchant processor for a material portion of our sales proceeds.

 

The availability of merchant processing providers willing to serve smaller companies is limited. Substantially all our credit card sales in the U.S. are processed by one merchant processor. In addition, as of March 31, 2022, and 2021, our accounts receivable balance includes $1.5 million due from a single merchant processor. Any disruption in the operations of this merchant processor, as a result of organized labor disputes, natural disasters, acts of cyberterrorism or otherwise, could disrupt or substantially decrease our cash flows from operation. If this occurred, particularly for an extended period, we may not be able to meet our obligations, including servicing our debt now or in the future. The occurrence of any of these conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

9

 

 

Our long-term success depends on our ability to attract and retain talented employees and management, and to develop effective management succession plans.

 

As a growing business, our long-term success depends in large part on our ability to attract and retain talented employees and senior executives who have strong knowledge, experience, and managerial skills, including in the direct selling industry. From time to time, key employees may retire or otherwise leave our business, and we may experience delays or be unsuccessful in attracting and integrating the new staff required to grow and operate our business profitably. In addition, as a growing company with a relatively limited number of executives currently on staff, our ability to develop effective management succession plans is limited. Effective management succession planning is important to our long-term success because failure to effectively transfer knowledge and to complete a smooth management transition could hinder or disrupt our strategic planning initiatives and/or adversely affect future execution of those initiatives and our performance. The occurrence of any of these conditions could have a material adverse effect on our consolidated business, financial condition, results of operations and cash flows.

 

Our ability to effectively manage and control our operating expenses.

 

We are a growing company and have not achieved sustained growth and profitability. Our ability to consistently generate earnings from operations depends in large part on our ability to successfully control our operating costs and expenses, while we continue to invest in strategic initiatives intended to grow our sales volume and business infrastructure, including our international footprint. In furtherance of this goal, we have intensified our ongoing activities to control operating costs and expenses, including by strengthening our financial management processes. There can be no assurance that our strategic initiatives and cost control efforts will result in the levels of profitability and positive cash flows that we expect, if at all, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Our quarterly and annual financial performance and potential fluctuations therein.

 

Our quarterly and annual financial performance may fluctuate and adversely affect the price of our Common Stock, often for causes outside of our control. For example, consumer demand for our products and services and, as a result, our quarterly and annual consolidated sales levels, may increase or decrease materially, among other things, because of changes in actual or anticipated levels of employment, changes in the interest rates applicable to consumer credit cards, inflation, national or local political uncertainty, increased competition, and changes in consumer sentiment in general in the countries where we operate. In addition, our results of operations and cash flows may decrease because of, among other things, potential increases in our product costs beyond that which we can pass along to our customers, changes in the willingness or ability of our suppliers to provide product to us in a timely manner, increases in labor costs and in payroll tax rates, and changes in the regulatory environment in the countries where we operate. The occurrence of any of these conditions could have a material adverse effect on our quarterly financial performance and adversely affect the price of our Common Stock.

 

Our ability to generate sustained positive cash flows from operations or to obtain additional financing, if needed, with which to fund our working capital needs, including servicing or refinancing our debt, now and in the future.

 

We are a developing company and have not consistently generated sustained positive cash flows from operations. We have experienced significant fluctuations in our operating cash flows, or have otherwise depended on the issuance of equity securities and debt, including convertible notes and short-term borrowings under financing arrangements, in order to meet our working capital needs. For example, during the fiscal year ended March 31, 2022, and 2021, our net cash used in operating activities was $15.1 million and $1.6 million, respectively. If the Company is unable to generate sustained positive cash flows from operations or to obtain additional equity or debt financing, if needed, this could inhibit the Company’s ability to implement its business strategies and to grow its business, service its debt, now or in the future, and otherwise meet its business goals. This could, in turn, have a material adverse effect on its financial condition, results of operations and cash flows.

 

10

 

 

Our financial performance could be adversely affected by economic downturns, particularly over an extended period.

 

Our results of operations may be materially impacted by changes in general economic conditions in the countries where our products are sold. The economies in such countries may be adversely affected by changes in government policy and/or by, among other things, changes in levels of employment, changes in tax laws, increases in energy costs, geopolitical conflict, natural disasters or acts of terrorism, widespread health crises, changes in consumer credit card interest rates, inflation, and changes in consumer sentiment in general. For example, as further discussed below, business activity in several sectors of the global economy were severely reduced because of the recent COVID pandemic. These conditions, in turn, resulted in significant economic contraction in countries where we operate. In the event of a significant economic downturn, particularly over an extended period of time, whether as a result of a similar health crisis or otherwise, consumer spending habits could be adversely affected over a longer term, and we could experience lower than expected sales. Any economic downturn could also adversely affect one or more of our key suppliers. The occurrence of any of these events could have a material adverse effect on our business, financial condition, and results of operations.

 

Our business and financial performance could be adversely affected by inflation.

 

In recent history, the inflation has generally been low in the geographies where we operate. However, at the time of this Annual Report, the inflation rate in the United States has reached a 40-year high, primarily as a result of higher energy costs and global supply chain disruptions. In the event of a significant increase in consumer prices, particularly over an extended period of time, consumer demand for discretionary products, such as our health and wellness products, could be adversely affected, and we could experience lower than expected sales. In addition, if any of our suppliers implemented price increases, in response to higher raw material, labor, and energy costs or otherwise, we may not be able to pass along such price increases to our customers and our profitability may be reduced. The occurrence of any of these events could have a material adverse effect on our business, financial condition, and results of operations.

 

The success of our efforts to register our trademarks and to protect certain intellectual property rights.

 

We have applied for, or are in the process of applying for, trademark protection in the U.S. and in other jurisdictions where we market and distribute or intend to market and distribute our products. We have obtained 22 trademarks and have over 34 pending trademark applications in the U.S. We anticipate securing additional U.S. trademarks and foreign trademarks. Trademark protection is increasingly important to our business. If we fail to register or enforce our intellectual property rights or if our intellectual property rights are successfully challenged, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Several of our products are manufactured under formulations and processes owned by some of our key vendors. Some of our key vendors have registered or applied for patent registrations to maintain exclusivity over the ingredients, formulation and processes, and the integrated products they supply to us. Such existing or potential patents, the underlying ingredients, formulation and processes, and integrated products could be material to our business. The Company reserves the right to join in any actions to defend against any infringement on such vendor-owned patents that could adversely affect the products the Company sells. If we, and our vendors were unsuccessful in protecting such intellectual property rights, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Our potential unintended infringement on the intellectual property rights of others.

 

The health and wellness industry is competitive and characterized by the need for trademarks to protect intellectual property rights, and by claims of infringement or other violation of intellectual property rights. A third-party may assert that one or more of our products violates that party’s intellectual property rights. Any successful intellectual property claim against us in the future could result in significant financial liability and/or prevent us from selling the affected product afterwards. In addition, the resolution of infringement claims may require that we redesign our products, obtain licenses to use intellectual property belonging to a third party, or cease using the intellectual property altogether. Moreover, any intellectual property claim, regardless of its merits, could be expensive and time-consuming to defend against. As a result, claims based on allegations of infringement or other violations of intellectual property rights, regardless of the outcome, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

From time to time, we are a party to lawsuits and other claims that may result in adverse outcomes.

 

In recent years, we have been a party to several claims and lawsuits arising from a wide variety of business activities, including acquisition-related contingencies, disputes between the Company and certain former officers, disputes between the Company and certain shareholders, and disputes between the Company and former independent distributors. Litigation and other claims are subject to inherent uncertainties and management’s assessment of these uncertainties may change in the future, including as a result of new information. A material adverse impact to our consolidated financial position and results of operations could occur in a period in which an unfavorable outcome becomes probable and reasonably estimable, and a material adverse cash flow could occur in the period when these lawsuits or claims are settled.

 

11

 

 

Our efforts to expand into foreign markets will increasingly expose us to foreign currency exchange rate fluctuations, and other risks inherent to foreign operations.

 

During the fiscal year ended March 31, 2022, and 2021, 87% and 94%, respectively, of our sales have been to customers and independent distributors located in the United States. However, as part of our strategic growth initiatives, in recent years we initiated efforts to expand our operations in other countries, mainly in Asia. As a result, the amount of our reported consolidated sales, expenses, and cash flows may be significantly affected by fluctuations in the relevant foreign currency exchange rates, as we translate the financial statements of our foreign operations from their functional currency into our reporting currency, the U.S. Dollar. In addition, as a multinational consolidated group, we and some of our domestic or foreign affiliates may obtain and hold assets and liabilities denominated in a currency different from our or their functional currency, in the normal course of business. As a result, we and some of our affiliates may incur foreign currency transaction gains and losses in connection with such assets and liabilities.

 

Our business may also become exposed to more adverse economic, regulatory, and other conditions in the international areas to which we market and distribute our products now or in the future, compared to those in the U.S. For example, our future international operations may result in exposure to more restrictive consumer safety, product labeling and other consumer product regulations; more restrictive labor laws and regulations; more frequent or unexpected changes in the regulatory environments; more economic volatility; higher rates of inflation; or higher political instability, compared to the U.S. Furthermore, our international operations may expose us to higher consolidated income tax rates, import and export restrictions and tariffs, restrictions on the expatriation of cash to the U.S., and potentially adverse changes in trade agreements between the U.S. and a particular foreign country where we market and distribute our products now or in the future.

 

The occurrence of any of these conditions could have a material adverse effect on our future business, financial condition, results of operations and cash flows.

 

Our ability to respond to any natural disasters, epidemics, and other health emergencies, or acts of violence or terrorism that may affect our customers and/or our business effectively and cost-efficiently.

 

The occurrence of natural disasters, epidemics or other health emergencies, or acts of violence or terrorism in the geographies we market and distribute our products now and in the future, could result in physical damage to our property, the temporary or long-term closure of a facility, the temporary or long-term disruption in the supply of products (or a substantial increase in the cost of those products) to us, the temporary or long-term reduction in our ability to sell products and grow our business, and/or the temporary reduction in consumer demand for our products and services. In addition, if one or more natural disasters, epidemics, or other health emergencies, or acts of violence or terrorism were to impact our global business, our insurance costs may rise significantly afterwards. The occurrence of any of these conditions could have a material adverse effect on our financial condition, results of operations and cash flows.

 

C – Risks Associated with our Products, and with Product and Consumer Laws and Regulations:

 

Our dependence on one supplier for a substantial portion of the products we sell and the potential for material disruptions in our supply chain or potential increases in the prices of the products we purchase beyond what we can pass along to our customers.

 

We depend on one supplier for a significant portion of the products we sell. Any disruption or substantial decrease in the supply of product by this supplier, as a result of a shortage of raw materials, organized labor disputes, natural disasters, acts of cyberterrorism, or otherwise, could disrupt or substantially decrease our ability to fulfill customer orders. If this occurred, particularly for an extended period, we may not be able to continue to offer these or similar products and our future sales may decline. In such event, we may not be able to offset the decline in sales through substitution of product, price increases, or otherwise. In addition, if this supplier or any of our suppliers implemented unilateral price increases, we may not be able to pass along such price increases to our customers and our profitability may be reduced. Further, if this supplier or any of our suppliers fails to continue to supply product of adequate quality and in a timely fashion to us, this could adversely affect our future sales. The occurrence of any of these conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Past or future reformulations of our products, including in response to potential governmental enforcement action, could be negatively received by our independent sales force and customers, and adversely impact future sales.

 

As part of our commitment to continuously improve our products, we introduce product reformulations and other product enhancements from time to time. In addition, we may be required to modify our product formulations from time to time to comply with existing or new regulations in the future, including in response to potential governmental enforcement action. Changes to our product formulations, whether as a result of potential governmental enforcement action or not, could be negatively received by our independent sales force and customers, and could adversely impact future sales, and our business, financial condition, results of operations and cash flows.

 

Potential product liability claims could harm our business.

 

Historically, product liability claims have not been material to our business. However, given the increase in product liability claim activity in recent years and the increased application of a “strict liability” legal standard to those claims particularly in the U.S., we purchase product liability insurance to minimize the financial risks associated with such claims or potential claims. The sources of product liability insurance coverage in the countries where we market and distribute our products are limited, product liability coverage is increasingly expensive, and product liability insurance policies contain many exclusions. We believe our product liability insurance policies significantly mitigate the potentially adverse financial impact to us resulting from most potential product liability claims. However, there can be no assurance that our product liability coverages are adequate to protect us sufficiently and against all potential claims. For example, if any of our products is found to have caused personal injury to a consumer, we might be subjected to liability substantially in excess of our insurance coverages. Any of these conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

12

 

 

Nutritional supplements are often supported only by limited available clinical studies.

 

Nutritional supplements, such as many of the Company’s health and wellness products, have a long history of human consumption. Some of our products may contain innovative ingredients or contain combinations of ingredients. Although we believe that all our products are safe when taken as directed, there is only limited data available about human consumption of certain of these product ingredients or combinations of ingredients in concentrated form. We and our key suppliers conduct research and test the formulation and production of our products, however, there are only limited, if any, conclusive clinical studies available about our products and similar product in the marketplace. Furthermore, because we are highly dependent on consumer perception of the efficacy, safety, and quality of our products, we could be adversely affected in the event that our products, or similar product in the marketplace, are proven or asserted to be ineffective or harmful to consumers or in the event of publicity associated with any adverse effects resulting from the use or misuse of our products, or similar products in the marketplace. Any of these conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Our ability to comply with current consumer product laws and regulations or our becoming subject to new or more stringent consumer product laws and regulations in the future.

 

Our business and the products we sell are subject to several national, state, and local laws and regulations in the countries where we currently market and distribute or intend to market and distribute our products. These laws and regulations generally govern the composition, packaging, labeling and consumer safety of the products we sell, as well as the information we use to market these products. In addition, the laws and regulations applicable to us and our products may become more stringent in the future. For example, the State of California enforces recent legislation that requires that “clear and reasonable” warnings be given to consumers who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity. Although we actively seek to comply with the requirements of this and all other laws and regulations applicable to our business and products, there can be no assurance our products would not be found to be defective in labeling or content, or that the labeling and content of our products will not be challenged in civil or enforcement actions in the future. Our continued compliance with existing or new consumer product laws and regulations could also require the review and possible reformulation or relabeling of our products, as well as the potential removal of some products from the marketplace. In addition, the existence of more stringent consumer product laws and regulation in countries where we intend to market and distribute our products, could hinder our ability to grow our business into such countries. If we were found to be in violation of existing or new consumer product laws or regulations in the future, this could result in significant fines or damages and other enforcement actions, in addition to significant costs and expenses to defend the resulting claims. The occurrence of any of these conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

D - Risks Associated with our System of Internal Controls, and with our Disclosure Controls:

 

If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our securities.

 

The Sarbanes-Oxley Act of 2002 requires, among other things, that we maintain effective internal control over financial reporting, and disclosure controls and procedures. Under Section 404(a) of the Sarbanes-Oxley Act, we are required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This report must include disclosure of any material weaknesses identified by our management during its periodic assessment of our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis. Our compliance with Section 404(a) of the Sarbanes-Oxley Act requires that we incur substantial accounting expense, and that our management spend significant time and efforts in its assessment of such internal control over financial reporting.

 

During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we would be required to implement remediation procedures aimed at mitigating the control weakness or weaknesses. Until such remediation procedures succeed in mitigating the control weakness or weaknesses, we would be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to timely and accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting in the future, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our securities could decline, and we could be subject to enforcement actions by the SEC or other regulatory authorities. Any failure to promptly remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

 

13

 

 

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

 

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Securities Act, or the Exchange Act is accumulated and communicated to management, recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and executed, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple human error or mistake. Additionally, controls can be circumvented by the individual acts of a person, by collusion of two or more people, or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in any control system, misstatements, or insufficient disclosures due to error or fraud may occur and not be detected.

 

E – Risks Associated with our Information Technology Systems and with Cybersecurity:

 

We may be adversely affected by any disruption in our information technology systems.

 

We depend on our information technology systems to manage most of our major business functions, including sales order processing, independent sales force service and support, billings and collection, human resources and recordkeeping, and accounting and reporting. More specifically, we rely upon our information technology systems to procure and replenish inventory, to fulfill and ship customer orders, to coordinate our sales activities across several functional areas, to carry out our administrative activities, and to protect personal or sensitive information about our customers, independent distributors, employees, vendors, and other business partners that we received in the ordinary course of our business. A substantial disruption in our information technology systems could result in delays in receiving product and in filling customer orders, and adversely affect our relationships with our customers, independent distributors, employees, vendors, and other business partners, and damage our reputation and business.

 

As our operations rapidly grow in both size and scope, we continuously need to scale and upgrade our systems and infrastructure to meet increased demand, while preserving their reliability and integrity. For example, we recently implemented an information system upgrade in the U.S. to better accommodate our current and anticipated growth. Any expansion or upgrade to our systems and infrastructure in the future will require us to commit substantial financial, operational, technical, and human resources before the volume of our business increases, with no assurance that the volume of business will increase to the extent we expect or at all. Also, there can be no assurance that any system expansion or upgrade will result in the anticipated benefits and efficiencies, or that the costs of such system expansion or upgrade will not outweigh the benefits and efficiencies derived.

 

Any of these conditions could have a material adverse effect on our financial condition, results of operations and cash flows.

 

We may be adversely affected by potential acts of cyberterrorism.

 

The normal course of our business requires the collection, transmission, and retention of large volumes of confidential and proprietary information, including personal or confidential information of our customers, independent distributors, suppliers, and employees in the information technology systems that we maintain and in those maintained by certain third parties with which we do business. We operate in a global environment characterized by increasing threats of cyberterrorism. Information technology system threats can take a variety of forms. Individual hackers, groups of hackers, and sophisticated organizations, including state-sponsored organizations or nation-states, often commit cyberattacks that pose threats to government, military, educational, and business institutions, among others. These actors could use a wide variety of methods, which could include the development and deployment of malicious software or exploiting vulnerabilities in hardware, software, or other infrastructure in order to gain access to networks and data, potentially compromising sensitive customer, independent distributor, supplier, employee, or other information.

 

Cyber-threats are constantly evolving, making it increasingly difficult to prevent, detect and successfully defend against. A potential breach of our facilities, data systems or data security could disrupt the operations of our information technology systems and business, impair our ability to ship product or provide services to our customers, and potentially compromise the privacy of our data, including our confidential or technical business information. In addition, the risk of one or more cybersecurity incidents may be heightened as many of our employees work remotely, for example, as a result of the recent COVID crisis. Any of these things could harm our reputation or competitive position, require us to allocate more resources to improve our systems, technologies, and infrastructure, or otherwise adversely affect our business, financial condition, results of operations and cash flows.

 

14

 

 

F – Risks Associated with the COVID Pandemic and Economic Impact Thereof:

 

The recent COVID pandemic and actions to mitigate it have adversely impacted the economies in the countries where we our products are sold, and are likely to have adversely impacted our business.

 

In 2020, in response to the COVID pandemic, governments in the countries where we market and distribute our products mandated or recommended various containment measures, including selective business closures, social distancing, quarantine, stay-at-home or shelter-in-place directives, and limitations on, or cancellations of, larger meetings and other public events. We believe that the actual impact of the health crisis, and/or actions taken to contain the spread of the virus, have had and continue to have an adverse impact on the economies in the geographies we serve. Consumer demand for discretionary products such as ours is sensitive to significant downturns in the economy, increases in unemployment or decreases in perceived employment security, and decreases in consumer sentiment in general.

 

In efforts to protect our customers, distributors, employees, and other business partners, in 2020, we instituted several preventive measures, including temporarily transitioning a significant number of our corporate employees to working remotely, increasing efforts to clean and sanitize our business facilities, increasing employee safety communication, and transitioning our sales conventions to a virtual convention platform. While these temporary measures are increasingly being eased or fully reversed at the time of this Annual Report, we believe these necessary, temporary measurements are likely to have had an adverse impact on our business.

 

As a result of the foregoing, we cannot predict with certainty the scope, duration, and ultimate impact of this public health emergency in the countries where our products are sold, including its impact on the economy, but we believe these conditions are likely to have had and continue to have a material adverse impact on our business, financial condition, cash flows, and results of operations (including revenues and profitability), and those of our key suppliers.

 

G – Risks Associated with our Common Stock, with our Preferred Shareholder Rights, and with the current concentration of the majority of our Common Stock under the control of a corporate shareholder:

 

Future sales and issuances of our Common Stock or rights to purchase our Common Stock, including issuances pursuant to convertible notes and stock warrants currently outstanding, will result in additional dilution of the percentage ownership by our existing stockholders and could cause our trading price to decline.

 

We expect that significant additional capital will be needed in the future to fund our planned growth, including our ongoing efforts to expand our footprint outside the U.S. To raise capital, we may sell substantial amounts of Common Stock or securities convertible into or exchangeable for Common Stock. Convertible notes and stock warrants currently held by DSS, Inc. and its affiliates may result in the issuance of up to 360,000,000 additional shares of our Common Stock. In addition, convertible notes and stock warrants currently held by HWH International, Inc. may result, in the aggregate, in the issuance of 666,666 or more additional shares of our Common Stock. DSS, Inc. and its affiliates, and HWH International, Inc. are affiliated with Heng Fai Ambrose Chan, the Executive Chairman of the Company’s Board of Directors. Future issuances of equity or equity-linked securities, together with future conversions of our Preferred Stock and exercises of stock warrants currently outstanding or granted in the future, and shares issued in connection with future acquisitions, if any, may result in material dilution to the equity interests of our existing investors. In addition, as a result of such future issuances, new investors could gain rights, preferences and privileges senior to those of the current holders of our Common Stock.

 

Our Board of Directors may adopt an equity compensation plan in the future to enhance our efforts to attract and reward employees, executives, and consultants with grants of equity-based awards. Future issuances of equity-based awards, including issuances under any such future equity compensation plan, may result in material dilution to the equity interests of our existing investors and have an adverse effect on the market price of our securities.

 

Certain corporate stockholders own a significant combined amount of our Common Stock, which could allow them to influence corporate transactions and other matters and could otherwise limit the potential growth in the price of our Common Stock.

 

As of the date of this filing, 191,879,003 shares representing 66% of our total issued and outstanding Common Stock were held by DSS, Inc. (“DSS”) and its affiliates and under the voting control of Heng Fai Ambrose Chan, the Executive Chairman of our Board of Directors. In addition, the CEO and Vice Chairman of the Board of Directors of the Company, and two additional Directors of the Company, including Mr. Chan, also serve on the Board of Directors of DSS. Further, as discussed above, convertible notes and stock warrants held by DSS and HWH International, Inc., both affiliated with Mr. Chan, may result in the issuance of a substantial additional Common Stock and in a substantial additional concentration of our Common Stock under the voting control of Mr. Chan. As a result, before or after the potential exercises or conversions of such convertible notes and stock warrants, DSS and its affiliates control the majority of the total voting rights of our Common Stock, which could affect the outcome of a shareholder vote, including, the election of directors, the adoption of employee stock option plans, the adoption of amendments to our articles of incorporation and bylaws, the approval of acquisitions, mergers and other corporate transactions, or the potential declaration and payment of dividends and distributions on our Common Stock.

 

15

 

 

The conditions discussed above may constitute a material limitation on the rights of our other Common Stockholders, including the right to receive dividends and other to distributions, if any, in the future and may limit the relative voting power of our other stockholders or otherwise limit the potential growth in the price of our Common Stock.

 

Our Common Stock has historically had a limited market and high stock price volatility. If an active trading market for our Common Stock develops, trading prices for our stock may be more volatile.

 

The principal U.S. market for our Common Stock is the OTCQB Market, an over-the-counter trading platforms market operated by OTC Markets Group Inc. Our Common Stock has historically had limited daily trading activity. In addition, the price of our stock has historically been volatile. For example, the 52-week trading price for our Common Stock has ranged been $0.023 to $0.229 per share. Many factors, some of which are beyond our control, may cause the price of our Common Stock to decline over the short-term or over a long-term, regardless of our operating results. These factors include, among others, fluctuations in our operating results; trends or adverse publicity related to our business, products, competitors or industry; the unwillingness of some stockbrokers to place trading orders in our stock and the resulting limitations in the number of stockbrokers willing to trade our stock; the concentration of a large number of shares of our Common Stock in one or a few stockholders, the sale of our Common Stock by one or more significant stockholders, changes in the economic conditions in the geographies where we operate, and a decline in the stock market in general. If an active market for our Common Stock develops, trading prices for our stock may be more volatile and expose our stockholders to a higher risk of loss of principal over the short-term or over a long-term.

 

We will continue to incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance requirements as a result of our disclosed intent to uplist our stock in the NASDAQ Capital Market.

 

We will continue to incur significant increased administrative costs, including legal, accounting, and other expenses, as a result of operating as a public company, and our management will be required to devote substantial time to incremental compliance requirements as a result of our disclosed intent to uplist our stock in the NASDAQ Capital Market. For example, we have incurred and will continue to incur costs associated with the preparation and filing of annual, quarterly, and current reports pursuant to the Exchange Act. In addition, after our disclosed intent to uplist our stock in the NASDAQ Capital Market, we will be subject to mandatory incremental corporate governance and other compliance requirements. Further, the Sarbanes-Oxley Act, and rules subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the NASDAQ Capital Market have imposed various demanding reporting and corporate governance requirements on public companies. Stockholder activism, the current political environment, and the current high level of government intervention and regulatory reforms may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and adversely impact (in ways we cannot currently anticipate) the way we operate our business. Our management and staff will need to devote substantial amounts of time to these compliance initiatives. Moreover, these rules and regulations have and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we will incur additional expense to increase our director and officer liability insurance.

 

In addition, if we cease to be a smaller reporting company and become subject to Section 404(b) of the Sarbanes-Oxley Act, we will be required to furnish an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period of time, we will continue to be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and time-consuming. In this regard, we will need to dedicate substantially greater internal resources, potentially engage outside consultants, and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate, through testing, that the controls are functioning as documented and intended, and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that our independent registered public accounting firm, when required, will not be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

 

Certain rights of our Preferred Stockholders may limit your rights as a Common Stockholder.

 

The Company’s authorized capital stock structure is comprised of multiple classes of Common Stock (Class A and Class B) as well as Preferred Stock ( Series A, B and C). As of the date of this filing, there are 288,923,969 shares of our Class A Common Stock and 6,320,000 shares of our convertible Preferred Stock (including the Series A and the Series C Preferred Stock) issued and outstanding. There are no shares of the Company’s Class B Common Stock or Series B Preferred Stock currently issued and outstanding.

 

The rights of the holders of Series A and C Preferred Stock are set out in a Certificate of Designation (for each such series) filed in the State of Nevada. Pursuant to such Certificates of Designation, each share of Series A and Series C Preferred Stock entitles the holder to one vote and is convertible into one share of our Class A Common Stock, at the option of the holder, subject to certain regulatory restrictions. In addition, pursuant to such Certificates of Designation, the affirmative vote of the holders of at least 86% of the shares of the Series A and the Series C Preferred Stock outstanding is required for the Board to declare and pay dividends and other distributions upon the shares of the Company’s Common Stock, unless, with respect to a cash dividend, the holders of the Company’s Preferred Stock (including the Series A and the Series C Preferred Stock) are to receive the same cash dividend as the Common Stock, on an if converted basis. Further, the shares of our Preferred Stock are senior to the shares of our Common Stock with regards to distributions in the event of dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary.

 

The preferred shareholder rights discussed above may constitute a material limitation on the rights of our Common Stockholders, including the right to receive dividends and other to distributions, if any.

 

16

 

 

Because we do not anticipate paying cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, likely will be your sole source of gain.

 

We have not declared or paid cash dividends on our capital stock at any time since our inception. We currently intend to retain our future earnings to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends or may materially restrict the amount of such dividends. As a result, capital appreciation, if any, of our securities likely will be your sole source of gain for the foreseeable future.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None

 

ITEM 2. PROPERTIES

 

The following table provides information about our material facilities:

 

Location  Type of Facility  Leased/Owned  Sq. Feet 
Plano, Texas  Corporate Headquarters  Leased   5,560 
Addison, Texas  Distribution Center  Leased   11,100 
Lindon, Utah  Office Building  Owned   25,800 
Seoul, South Korea  Asian Office  Leased   2,612 

 

In March 2022, the Company entered into a 7-year lease, for its new Corporate Headquarters in Plano, Texas. The Company intends to relocate to its new headquarters in the first quarter of its fiscal year 2023.

 

In June 2021, the Company commenced operations in Seoul, South Korea in a facility subleased from HWH World, Inc. (“HWH World”), a subsidiary of DSS and a company affiliated with Heng Fai Ambrose Chan, a Director of the Company. In May 2022, the Company and HWH World amended the related sublease agreement to reduce the space subleased by the Company and to reduce the related rent obligation.

 

During the fiscal years ended March 31, 2022, and 2021, a significant portion of the Company’s products were warehoused at a facility operated by a third-party warehouse and logistic partner located in Addison, Texas. That facility is not listed on the table above and is not owned or leased by the Company.

 

ITEM 3. LEGAL PROCEEDINGS

 

We may be involved, from time to time, in claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of these matters. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations.

 

We are subject to several U.S. federal, state and local laws and regulations. These laws and regulations govern, among other things, labor relations, the labeling and safety of the products we sell, and the methods we use to sell these products. We believe that we are in material compliance with all such laws and regulations, although no assurance can be provided that this will remain true indefinitely in the future.

 

(a)

Case No. 4:20-cv-00946; Dennis Burback, Ken Eddy and Mark Andersen v. Robert Oblon, Jordan Brock, Jeff Bollinger, Four Oceans Global, LLC, Four Oceans Holdings, Inc., Alchemist Holdings, LLC, Elepreneurs U.S., LLC, Elevacity U.S., LLC, Sharing Services Global Corporation, Custom Travel Holdings, Inc., and Does 1-5, pending in the United States District Court for the Eastern District of Texas. On December 11, 2020, three investors in Four Oceans Global, LLC filed a lawsuit against the Company, its affiliated entities, and other persons and entities related to an investment made by the three investors in 2015. The Company and its affiliated entities have filed an answer denying the three investors’ claims. Plaintiffs filed a first amended complaint on October 14, 2021. This matter remains pending as of March 31, 2022.

 

17

 

 

(b)

AAA Ref. No. 01-20-0019-3907; Sharing Services Global Corporation, Elevacity Holdings, LLC, Elevacity U.S., LLC, Elepreneurs Holdings, LLC and Elepreneurs U.S., LLC v. Robert Oblon, pending before the American Arbitration Association. On December 30, 2020, the Company and its affiliated companies filed an arbitration complaint against Robert Oblon for breach of contract and a declaratory judgment relating to the Multi-Party Settlement Agreement with Robert Oblon. This matter remains pending as of March 31, 2022.

   
(c)

Case No. 4:20-cv-00989; Sharing Services Global Corporation, Elevacity Holdings, LLC, Elevacity U.S., LLC, Elepreneurs Holdings, LLC and Elepreneurs U.S., LLC v. Robert Oblon, pending in the in the United States District Court for the Eastern District of Texas. On December 30, 2020, the Company and its affiliated companies filed a lawsuit against Robert Oblon seeking injunctive relief relating to the Multi-Party Settlement Agreement with Robert Oblon. This matter is a companion case to the AAA arbitration proceeding described in paragraph (b) above and, while it remains pending as of December 31, 2021, further action in this case has been stayed by court order, pending final adjudication of the referenced AAA arbitration proceeding.

   
(d)

Case No. 4:21-cv-00026; Elepreneurs Holdings, LLC d/b/a Elepreneur, LLC, Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC, and SHRG IP Holdings, LLC v. Lori Ann Benson, Andrea Althaus and Lindsey Buboltz, pending in the United States District Court for the Eastern District of Texas. On December 31, 2020, the Company filed suit against three former distributors and obtained injunctive relief from the 429th Judicial District of Collin County, Texas. The lawsuit was removed by the three former distributors to federal court. The Company subsequently obtained injunctive relief from the federal court. The matter remains pending as of March 31, 2022.

   
(e)

Case No. 4:21-cv-00183; Sharing Services Global Corporation f/k/a Sharing Services, Inc., Elepreneurs Holdings, LLC n/k/a Elevacity Holdings, LLC, Elepreneurs U.S., LLC n/k/a Elevacity U.S., LLC and SHRG IP Holdings, LLC v. AmplifeiIntl, LLC d/b/a HAPInss and HAPInssBrands, LLC pending in the United States District Court for the Eastern District of Texas. On March 5, 2021, the Company and its affiliated entities filed suit against a newly formed competitor for various claims including trademark infringement, trade secret violations, unfair competition under state and federal law as well as tortious interference with contracts and business relationships. The matter remains pending as of March 31, 2022.

   
(f) Cause No. 429-01137-2022; Elevacity U.S., LLC d/b/a The Happy Co. and Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC v. Mark Willodson, Judy Willodson and Valentus, Inc., pending in the 429th Judicial District Court of Collin County, Texas. On March 9, 2022, the Company filed suit against a competitor and former distributors. The matter remains pending as of March 31, 2022.
   
(g) Case No. 4:22-cv-00042; Elevacity U.S., LLC d/b/a The Happy Co. and Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC v. Brian Christopher Schweda, Jr., pending in the United States District Court for the Eastern District of Texas. On January 20, 2022, the Company filed suit against a former distributor. The matter remains pending as of March 31, 2022.
   
(h) Case No. 4:22-cv-00047; Elevacity U.S., LLC d/b/a The Happy Co. and Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC v. Kimberley McLean, pending in the United States District Court for the Eastern District of Texas. On January 20, 2022, the Company filed suit against a former distributor. The matter remains pending as of March 31, 2022.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market for the Company’s Common Stock

 

(a) - Market Information

 

The principal U.S. market for our Common Stock is the OTCQB Market, an over-the-counter trading platforms market operated by OTC Markets Group Inc. Readers should be aware that over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

 

Our Common Stock is traded under the symbol “SHRG.” Sharing Services, Inc.’s Common Stock commenced trading on March 7, 2017, under the symbol SHRV. In January 2019 the Company changed its corporate name to Sharing Services Global Corporation, as discussed elsewhere in this Annual Report. In connection with the name change, effective April 4, 2019, the Company’s Common Stock commenced trading under the symbol SHRG.

 

(b) - Holders

 

As of June 10, 2022, there were 170 stockholders of record of our Common Stock.

 

(c) - Dividends

 

We have not declared or paid dividends at any time during our past two fiscal years. We currently anticipate that we will retain future earnings to support reinvestments in our business and our growth plans. Any payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon, among other things, future operating earnings and cash flows, future capital requirements, contractual restrictions (including those contained in the agreements and instruments governing our debt and the Certificates of Designation of our convertible Preferred Stock) and general business conditions.

 

(d) Securities Authorized for Issuance Under Equity Compensation Plans

 

The information contained under the caption “Equity Compensation Plans” in ITEM 12 – “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS” is incorporated herein by reference.

 

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

 

In the month ended February 28, 2022, the Company issued 50,000,000 shares of its Class A Common Stock in connection with the exercise of warrants by DSS, Inc., a majority shareholder of the Company. The proceeds from these stock issuances were used for general corporate purposes.

 

In connection with the transactions described in the preceding paragraph, no underwriters were involved, there were no proceeds generated (except as indicated in the preceding paragraph), and the issuances were made in reliance on the exemption from the registration requirements of the Securities Act of 1933 provided under Section 4(a)(2) thereof.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

We are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act. Accordingly, we have omitted the performance graph otherwise required by Item 5 of this Annual Report as permitted by applicable scaled disclosure rules.

 

ITEM 6. [RESERVED]

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

In March 2021, the Company changed its fiscal year-end from a fiscal year ending on April 30th to a fiscal year ending on March 31st. This section reflects management’s views of the consolidated financial condition as of March 31, 2022, and 2021, and the consolidated results of operations and changes in financial condition for the fiscal year ended March 31, 2022 (a 12-month period) and the fiscal year ended March 31, 2021 (an 11-month period) of Sharing Services Global Corporation and consolidated subsidiaries. This section should be read in conjunction with, the Company’s audited consolidated financial statements and related notes contained in Item 8 of this Annual Report. We believe the recent COVID pandemic is likely to have had and continues to have a material adverse impact on our business, financial condition, cash flows, and results of operations. See Overview – “Continuing Uncertainty Regarding the Recent COVID Pandemic” below. This section may contain forward-looking statements. Please see “Cautionary Notice Regarding Forward-Looking Statements.” located at the front of this report.

 

Summary Results of Operations:

 

   Fiscal Year Ended March 31,     
   2022   2021   Increase (Decrease)  

%

Change

 
Net sales  $34,424,314   $64,811,151   $(30,386,836)   -46.9%
Gross profit   23,622,443    46,546,657    (22,924,214)   -49.2%
Operating expenses   (36,954,618)   (48,724,183)   (11,769,565)   -24.2%
Operating loss   (13,332,175)   (2,177,526)   11,154,649    512%
Non-operating income (loss), net   (6,810,312)   347,996    7,158,308    2057%
Loss before income taxes   (20,142,487)   (1,829,530)   18,312,957    966%
Income tax benefit   (3,035,990)   (594,509)   2,441,481    411%
Net loss  $(17,106,497)  $(1,235,021)  $15,871,476    1285%

 

Highlights for the Fiscal Year Ended March 31, 2022:

 

For the fiscal year ended March 31, 2022, our consolidated net sales decreased by $30.4 million, to $34.4 million, compared to $64.8 million for the fiscal year ended March 31, 2021.

 

For the fiscal year ended March 31, 2022, our consolidated gross profit decreased by $22.9 million, to $23.6 million, compared to $46.5 million for the fiscal year ended March 31, 2021, and our consolidated gross margin was 69.1% and 71.8%, respectively.

 

For the fiscal year ended March 31, 2022, our consolidated operating loss was $13.3 million compared to $2.2 million for the fiscal year ended March 31, 2021.

 

For the fiscal year ended March 31, 2022, our consolidated net non-operating expenses were $6.8 million compared to a net non-operating income of $347,996 for the fiscal year ended March 31, 2021.

 

For the fiscal year ended March 31, 2022, our consolidated net loss was $17.1 million, compared to $1.2 million for the fiscal year ended March 31, 2021. Our diluted loss per share was $0.08 for the fiscal year ended March 31, 2022, compared $0.01 for the fiscal year ended March 31, 2021.

 

For the fiscal year ended March 31, 2022, our consolidated net cash used in operating activities was $15.2 million compared to $1.6 million for the fiscal year ended March 31, 2021.

 

In April 2021, Sharing Services borrowed $30.0 million from Decentralized Sharing Systems, Inc. (“DSSI”), a subsidiary of DSS, Inc. (formerly Document Security Systems, Inc.) (“DSS”), and, together with DSS, a majority shareholder of the Company.

 

In April 2021, Sharing Services issued to DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of a loan origination fee of $3.0 million and 12,000,000 shares in prepayment of $2.4 million in interest in connection with the DSSI loan discussed in the preceding item.

 

In September 2021, Sharing Services invested $1.4 million in Stemtech Corporation and $1.5 million in MojiLife, LLC, both emerging growth businesses.

 

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In December 2021, Sharing Services, through a subsidiary, purchased a 25,800 square feet office building in Lindon, Utah for $8.9 million.

 

In December 2021, DSSI invested $3.0 million in Sharing Services in exchange for 50,000,000 shares of Sharing Services’ Class A Common Stock and a stock Warrant to purchase up to 50,000,000 shares of Class A Common Stock.

 

In January 2022, DSS agreed to provide certain consulting services to Sharing Services in exchange for a monthly fee of $60,000 and a fully vested detachable stock warrant to purchase up to 50,000,000 shares of its Class A Common Stock. The stock warrant may be exercised at the exercise price of $0.0001 per share.

 

In February 2022, Sharing Services issued 50,000,000 shares of Class A Common Stock to DSS upon exercise of the Warrant discussed in the preceding item.

 

In March 2022, the Company entered into a 7-year lease, for its new Corporate Headquarters located in Plano, Texas. The Company intends to relocate to its new headquarters in the first half of its fiscal year 2023.

 

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 distributes its products from the U.S. to customers located in Australia, New Zealand and other countries. The Company’s U.S. subsidiaries market our products and services through an independent sales force, using their proprietary websites, including: www.elevacity.com and www.thehappyco.com. In June 2021, the Company, through a subsidiary, commenced operations in the Republic of Korea (South Korea).

 

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.

 

Corporate Name Change

 

Sharing Services Global Corporation was originally incorporated under the name Sharing Services, Inc. In January 2019, Sharing Services, Inc. changed its corporate name to Sharing Services Global Corporation to better reflect the Company’s strategic intent to grow its business globally. In connection with the name change, the Company adopted the trading symbol SHRG effective April 4, 2019. Prior to this the Company’s Common Stock traded under the trading symbol SHRV.

 

Change of Fiscal Year

 

In March 2021, Sharing Services changed its fiscal year-end from a fiscal year ending on April 30th to a fiscal year ending on March 31st. In connection with this change, the Company decided not to restate the information reported for prior accounting periods, because: (a) the Company’s businesses are not inherently seasonal, (b) the change in fiscal years did not otherwise materially distort comparability of the Company’s results of operations and cash flows, and (c) the cost to restate the data reported for prior periods outweighs the usefulness of such restated data. Accordingly, the consolidated financial statements included herein reflect the results of operations and cash flows for the fiscal year ended March 31, 2022 (365 days) compared to the eleven months ended March 31, 2021 (335 days).

 

Strategic 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.

 

21

 

 

Continuing Uncertainty Regarding the Recent COVID Pandemic

 

In 2020, in response to the COVID pandemic, governments in the countries where our products are sold mandated or recommended various containment measures, including selective business closures, social distancing, quarantine, stay-at-home or shelter-in-place directives, and limitations on, or cancellations of, larger meetings and other public events. We believe that the actual impact of the health crisis, and/or actions taken to contain the spread of the virus, have had and continue to have an adverse impact on the economies in the geographies we serve. Consumer demand for discretionary products such as ours is sensitive to significant downturns in the economy, increases in unemployment or decreases in perceived employment security, and decreases in consumer sentiment in general.

 

In efforts to protect our customers, distributors, employees, and other business partners, in 2020, we instituted several preventive measures, including temporarily transitioning a significant number of our corporate employees to working remotely, increasing efforts to clean and sanitize our business facilities, increasing employee safety communication, and transitioning our sales conventions to a virtual convention platform. While these temporary measures are increasingly being eased or fully reversed at the time of this Annual Report, we believe these necessary, temporary measurements are likely to have had an adverse impact on our business.

 

As a result of the foregoing, we cannot predict with certainty the scope, duration, and ultimate impact of this public health emergency in the countries where we operate, including its impact on the economy, but we believe these conditions are likely to have had and continue to have a material adverse impact on our business, financial condition, cash flows, and results of operations (including revenues and profitability), and those of our key suppliers.

 

The COVID emergency also may have the effect of exacerbating some of the other risk factors described elsewhere in this Annual Report, including the success of our growth initiatives, our ability to anticipate and effectively respond to changes in consumer preferences and buying trends in a timely manner, our dependence on one supplier for a substantial portion of the products we sell, potential fluctuations in our quarterly financial performance, our ability to generate sustained, positive cash flows from operations with which to fund our working capital needs, the potential impact on our financial performance from economic slowdowns, our ability to effectively and cost-efficiently respond to any epidemics and other health emergencies, and the potential impact on our business of any disruption in our information technology systems.

 

The Fiscal Year Ended March 31, 2022, Compared to the Fiscal Year Ended March 31, 2021

 

Results of Operations

 

Net Sales

 

For the fiscal year ended March 31, 2022 (a 12-month period), our consolidated net sales decreased by $30.4 million, to $34.4 million, compared to the fiscal year ended March 31, 2021 (an 11-month period). The decrease in net sales mainly reflects: (a) continuation of the decline in consumer orders that we experienced since the fourth quarter of 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 COVID pandemic and actions taken to help mitigate the spread of the virus in the U.S. and Canada. In efforts to restore sales growth, in the past several months, we have developed and launched our new business brand, “The Happy Co TM,” at our Elevacity division, have accelerated our previously announced initiatives to expand our operations into additional international geographies, and have further intensified our efforts to recruit, develop and reward our distributors and our efforts reach new consumers, including through the continued introduction of new products. This decrease was partially mitigated by sales (approximately $1.4 million) of our new operations in Asia and sales (approximately $5.2 million) of health and wellness products introduced in the U.S. since March 31, 2021.

 

We believe there has been and continues to be significant uncertainty about the potentially adverse impact of the current health crisis on the economies and employment markets of several countries, including the U.S. and Canada. Please see Overview – “Continuing Uncertainty Regarding the Recent COVID Pandemic” above.

 

The decrease of $30.4 million in consolidated net sales reflects a decrease in number of comparable product units sold (26%) and a decrease in average unit sales prices (74%).

 

During the fiscal year ended March 31, 2022, and 2021, the Company derived approximately 87% and 99%, respectively, of its consolidated net sales from the sale of its health and wellness product line.

 

During the fiscal year ended March 31, 2022, approximately 66% of consolidated net sales were to consumers (including approximately 32% to recurring customers, which we refer to as “SmartShip” sales, and approximately 34% were to new customers) and approximately 34% of consolidated net sales were to independent distributors. During the fiscal year ended March 31, 2021, approximately 71% of our net sales were to customers (including approximately 43% to recurring customers and approximately 28% were to new customers) and approximately 29% of our net sales were to our independent distributors.

 

Gross Profit

 

For the fiscal year ended March 31, 2022, our consolidated gross profit decreased by $22.9 million, to $23.6 million, compared to the fiscal year ended March 31, 2021, and our consolidated gross margin was 68.6% and 71.8%, respectively. During the fiscal year ended March 31, 2022, gross margin was adversely affected by aggressive product pricing and a shift in product sales mix (to lower margin products) in the normal course of business, partially offset by a decrease in our provision for expiring, damaged or excess (slow-moving) inventory of $399,050.

 

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Selling and Marketing Expenses

 

For the fiscal year ended March 31, 2022, our consolidated selling and marketing expenses decreased to $17.2 million, or 50.1% of consolidated net sales, compared to $29.7 million, or 45.9% of consolidated net sales for the fiscal year ended March 31, 2021. The decrease of $12.5 million in consolidated selling and marketing expenses is primarily due to lower sales commissions of $13.1 million (which reflects decrease in consolidated net sales discussed above), partially offset by higher sales convention expenses of $417,369 (as we resumed holding some in-person conventions in 2022) and higher marketing expense of $159,124.

 

General and Administrative Expenses

 

For the fiscal year ended March 31, 2022, our general and administrative expenses (which include corporate employee compensation and benefits, share-based compensation, professional fees, rent and other occupancy costs, certain consulting fees, telephone and information technology expenses, insurance premiums, and other administrative expenses) increased to $19.7 million, or 57.3% of consolidated net sales compared to $19.0 million, or 29.3% of consolidated net sales, for the fiscal year ended March 31, 2021. The increase in general and administrative expenses was due to higher consulting and professional fees of $3.0 million (including consulting fees of $766,415 in connection with a Consulting Agreement with DSS), higher loss on impairment of notes receivable and other assets of $543,042, higher depreciation and amortization expenses of $492,019, and higher other general corporate administrative expenses (other than consulting and professional fees, and bad debt expense) of $78,387, partially offset by lower stock-based compensation expense of $3.4 million.

 

Interest Expense, Net

 

For the fiscal year ended March 31, 2022, interest expense was $2.4 million, excluding amortization of debt discount of $8.9 million, amortization of deferred financing costs of $985,401, and interest income of $83,356. Interest expense of $2.4 million reflects mainly interest associated with borrowings under the $30.0 million loan from “DSSI.”

 

For the fiscal year ended March 31, 2021, our consolidated interest expense was $42,932, excluding amortization of debt discount of $18,647 and interest income of $13,966. Consolidated interest expense of $42,932 includes $37,425 associated with borrowings under short-term financing arrangements and $5,507 associated with our convertible notes.

 

Gain (loss) on Employee Warrants Liability

 

For the fiscal year ended March 31, 2022, 2021, gains in connection with employee warrants with a variable exercise price after service was completed were $2.5 million and $530,335, respectively.

 

Gain on Extinguishment of Debt

 

In June 2021, Sharing Services’ borrowings under the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) were forgiven pursuant to the CARES Act. The Company recognized a gain on extinguishment of debt of approximately $1,040,400 in connection therewith.

 

Unrealized Gains (Losses) on Investment in Unconsolidated Entities

 

For the fiscal year ended March 31, 2022, net unrealized gains in connection with our investment in equity instruments of unconsolidated entities were $3.6 million. See Note 9 of the Notes to Consolidated Financial Statements for more details.

 

Impairment Losses on Assets

 

For the fiscal year ended March 31, 2022, impairment losses, before income tax, in connection with our investment in unconsolidated entities and in connection with long-lived assets, in the aggregate, were $1.6 million.

 

Other Non-operating Income/Expense, net

 

For the fiscal year ended March 31, 2022, other non-operating expense was $211,035, consisting primarily of foreign currency transaction losses of approximately $170,000 and litigation settlement expenses of approximately $26,000. For the fiscal year ended March 31, 2021, consolidated other non-operating expense (consisting of litigation settlement expenses) were $134,726.

 

Income Tax Benefit

 

During the fiscal year ended March 31, 2022, the Company recognized a current federal income tax benefit of $2.1 million, including a valuation allowance of $2.1 million placed on certain deferred tax assets being carried forward or projected to reverse in future years due to the uncertainty of the Company generating sufficient taxable income in the foreseeable future to make realization probable, a deferred income tax benefit of $1.0 million, and a provision for state and local taxes of $100,569. During the fiscal year ended March 31, 2021, the Company recognized a current federal income tax benefit of $326,121, a deferred income tax benefit of $536,861, and a provision for state and local taxes of $268,473 million. See Note 2 - “SIGNIFICANT ACCOUNTING POLICIES” of the Notes to Consolidated Financial Statements in ITEM 8 “Financial Statements and Supplementary Data” contained elsewhere in this Annual Report for information about the Company’s accounting policies regarding accounting for income taxes.

 

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Net Earnings (Loss) and Earnings (Loss) per Share

 

As a result of the foregoing, for the fiscal year ended March 31, 2022, and 2021, our consolidated net loss was $17.1 million and $1.2 million, respectively. For the fiscal year ended March 31, 2022, and 2021, our diluted loss per share was $0.08 and $0.01, 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) was $7.4 million and $3.5 million as of March 31, 2022, and 2021, respectively.

 

As of March 31, 2022, and 2021, cash and cash equivalents were $17.0 million and $12.1 million, respectively. Based upon the current level of operations and anticipated investments necessary to 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. However, when needed to compensate for any temporary fluctuations in our working capital needs, compared to our operating cash flows, we may obtain occasional additional financing through the issuance of equity securities and secured and unsecured debt, including borrowings under convertible notes and short-term financing arrangements. Please see ITEM 1A – “RISK FACTORS” - “Our ability to generate sustained positive cash flows from operations or to obtain additional financing, if needed, with which to fund our working capital needs, including servicing or refinancing our debt, now and in the future.”

 

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 “Recent Issuances of Equity Securities” and “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 shows our cash flow activities for the fiscal year ended March 31, 2022, compared to the fiscal year ended March 31, 2021:

 

   Fiscal Year Ended March 31 
   2022   2021   Increase
(Decrease)
 
Net cash used in operating activities  $(15,226,654)  $(1,566,970)  $13,659,684 
Net cash used in investing activities   (12,843,757)   (1,195,639)   11,648,118 
Net cash provided by financing activities   32,978,607    3,164,290    29,814,317 
Impact of currency rate changes in cash   (29,339)   -    29,339 
Net increase (decrease) in cash and cash equivalents  $4,878,857   $401,681   $4,477,176 

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities increased by $13.7 million, to $15.2 million, for the fiscal year ended March 31, 2022, compared to the fiscal year ended March 31, 2021. The $13.7 million increase was due to an increase in our operating loss of $9.6 million, excluding non-cash items, such as depreciation and amortization, stock-based compensation expense, provision for obsolete inventory losses, amortization of debt discount, gains (losses) on investments in unconsolidated entities and losses on impairment of notes receivable and other assets, and deferred income taxes and net changes in operating assets and liabilities of $4.1 million.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities increased by $11.6 million, to $12.8 million, for the fiscal year ended March 31, 2022, compared to the fiscal year ended March 31, 2021. The $11.6 million increase was primarily due to higher capital expenditures (including the impact of the December 2021 purchase of our Lindon, Utah building) and capitalizable costs related to ongoing upgrades to our information technology systems, in the aggregate, of $8.4 million, higher payments for investments in unconsolidated entities of $2.9 million and higher net payments for notes receivable of $483,638. This increase was partially offset by lower payments for intangible assets of $190,151.

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing activities increased by $29.8 million, to $33.0 million for the fiscal year ended March 31, 2022, compared to the fiscal year ended March 31, 2021. The $29.8 million increase was mainly due to higher net proceeds ($29.0 million) from borrowings under short-term financing arrangements and/or convertible promissory notes (including borrowings of $30.0 million from DSSI in the fiscal year ended March 31, 2022) and lower repurchases of common stock of $899,500. This increase was partially offset by repayment of a convertible note of $100,000.

 

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Impact of currency rate changes in cash

 

Prior to April 1, 2021, substantially all consolidated net sales were denominated in U.S. dollars. Effective April 1, 2021, the Company’s consolidated financial statements reflect the operation of our wholly owned subsidiaries operating in the Asia Pacific region. See Note 2 - “SIGNIFICANT ACCOUNTING POLICIES” of the Notes to Consolidated Financial Statements contained elsewhere in this Annual Report for information about our translation of foreign currency financial statements.

 

Potential Future Acquisitions

 

The Company intends to further grow its business by pursuing a multipronged growth strategy, which includes increasing the number of product offerings in the U.S. and Canada, expanding its geographic footprint primarily in the Asia Pacific region, and developing and launching a line of consumer travel services. This growth strategy may also include the use of strategic acquisitions, subject to the approval of the Company’s Board of Directors, of businesses that augment the Company’s product and services portfolio, business competencies and geographic reach. Such potential acquisitions and purchases of equity interests are expected to be funded with cash and cash equivalents, cash provided by operations, and issuance of equity securities and debt, including convertible debt. See “Short-term Borrowings and Convertible Notes” below.

 

Recent Issuances of Equity Securities

 

In the fiscal year ended March 31, 2022:

 

  Sharing Services issued to DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of a loan origination fee of $3.0 million and 12,000,000 shares in prepayment of $2.4 million in interest in connection with the April 5, 2021, DSSI loan discuss below.
     
 

DSSI invested $3.0 million in Sharing Services in exchange for 50,000,000 shares of its Class A Common Stock and a warrant to purchase up to 50,000,000 shares of Class A Common Stock.
     
  Sharing Services issued 50,000,000 shares of Class A Common Stock to DSS upon exercise of the stock warrant granted to DSS in connection with a consulting agreement entered into in January 2022. See NOTE 15, “RELATED PARTY TRANSACTIONS,” of the Notes to Consolidated Financial Statements in ITEM 8 “Financial Statements and Supplementary Data” contained elsewhere in this Annual Report for more details.

 

Short-term Borrowings and Convertible Notes

 

Borrowing Under Financing Arrangements (Note Payable)

 

In May 2020, the Company applied for and was granted a loan (the “PPP Loan”) by a commercial bank in the amount of $1,040,400, pursuant to the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”). The Company’s borrowings under the PPP Loan were eligible for loan forgiveness under the provisions of the CARES Act. In June 2021, the Company was formally notified by the lender that the Company’s obligations under the loan were forgiven effective May 25, 2021.

 

In May 2022, Linden Real Estate Holdings, LLC, a wholly owned subsidiary of the Company, American Pacific Bancorp, Inc. (“APB”), and the Company entered a term sheet pursuant to which APB agree to extend a loan to the Company for approximately $5.7 million. The loan would bear interest at 8%, mature on June 1, 2024, and be secured by a first mortgage interest on the Company’s Lindon, Utah office building. APB is a subsidiary of Alset eHome International Inc (NASDAQ:AEI). Heng Fai Ambrose Chan, and Frank D. Heuszel, each a Director of the Company, also serve on the Board of Directors of APB, and Mr. Chan also serves on the Board of Directors of Alset eHome International.

 

Convertible Notes Payable

 

In the fiscal year ended March 31, 2022, the Company repaid convertible notes payable in the aggregate amount of $100,000. As of March 31, 2022, Convertible Notes Payable consist of a Convertible Promissory Note in the principal amount of $30.0 million in favor of DSSI, and a Convertible Promissory Note in the principal amount of $50,000 , before unamortized discount of $5,244, held by HWH International, as further discussed below.

 

On April 5, 2021, the Company and Decentralized Sharing Systems, Inc. (“DSSI”) who, together with its parent, DSS, Inc. (formerly Document Security Systems, Inc.), is currently a majority 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. The Note bears interest at the annual rate of 8% and matures on April 5, 2024. Under the terms of the loan, the Company agreed to pay to DSSI a loan Origination Fee of $3.0 million, payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. Interest on the Note is pre-payable annually in cash or in shares of the Company’s Class A Common Stock, at the option of the Company, except that interest for the first year was pre-payable in shares of the Company’s Class A Common Stock. Borrowings under the Note may be prepaid without penalty, in full or in part, at the option of the Company, at any time after the first anniversary of the Note. 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 can be converted into shares of the Company’s Class A Common Stock at the rate of $0.20 per share, at the option of the holder. In April 2021, the Company issued to DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan Origination Fee discussed above and 12,000,000 shares in prepayment of interest for the first year.

 

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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 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. HWH has informed the Company that it believes that during the term of the Note, the Company has granted more favorable financing terms to third-party lenders. As of the date of this Annual Report, the Company and HWH are evaluating alternative options to settle this Note in the foreseeable future.

 

Capital Resources

 

During the two fiscal years in the period ended March 31, 2022, the Company did not have material commitments for capital expenditures. During the fiscal year ended March 31, 2022 (a 12-month period) and March 31, 2021 (an 11-month period), our consolidated capital expenditures were $364,589 and $751,230, respectively, primarily consisting of the purchase of furniture and fixtures, computer equipment and software, and leasehold improvements in the ordinary course of our business.

 

In addition, in the fiscal year ended March 31, 2022, our consolidated capital expenditures include our purchase, through one of our subsidiaries, of an office building in Lindon, Utah for $8,942,640. Further, in the fiscal year ended March 31, 2021, the Company capitalized costs related to ongoing upgrades to its information technology systems and office renovations, in the aggregate, of $163,106. These capitalized costs were carried in other assets in our Consolidated Balance Sheets until the related assets were placed in service in the fiscal year ended March 31, 2022.

 

Cash Requirements from Known Contractual and Other Obligations

 

As of March 31, 2022, the Company’s contractual obligations consist of (a) future principal and interest payments in the aggregate amount of $34.9 million in connection with the Company’s convertible debt and (b) obligations associated with Type B leases (as defined by Accounting Standards Codification (“ASC”) Topic 842, Leases) of $816,016. See Note 13 – “LEASES” of the Notes to Consolidated Financial Statements contained in Item 8 “Financial Statements and Supplementary Data” of this Annual Report for more details about the Company’s leases.

 

As discussed above, on April 5, 2021, the Company and Decentralized Sharing Systems, Inc. (“DSSI”) who, together with its parent, DSS, Inc., is currently a majority 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. The Note bears interest at the annual rate of 8% and matures on April 5, 2024. In May 2022, the parties to the Securities Purchase Agreement entered into a term sheet pursuant to which the Company agreed to issue to DSSI (a) a two-year Convertible, Advancing 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 at the exercise price of $0.033 per share. 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 may be converted into up to 818,181,819 shares of the Company’s Class A Common Stock, at the option of the holder. Under the terms of the term sheet, the Company agreed to pay to DSSI a loan origination fee of $270,000, payable in shares of the Company’s Class A Common Stock or in cash, at the Company option. In addition, pursuant to the letter of intent, DSSI agreed to surrender to the Company all DSSI’s rights pursuant to (a) a certain Convertible Promissory Note in the principal amount of $30.0 million issued 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. The Company will recognize the exchange of the 2022 Note and detachable warrant for the April 2021 note and detachable warrant as a modification of debt upon closing of the transaction, expected in the first quarter of its fiscal year ending March 31, 2023.

 

26

 

 

Critical Accounting Estimates

 

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at each balance sheet date, reported amount of revenues and expenses for each reporting period presented, and related disclosures of contingent liabilities. Actual results may differ from these estimates. We believe the Company’s estimates and assumptions are reasonable.

 

Our critical accounting estimates relate to the valuation of inventory, the assessment of long-lived assets for impairment, the valuation of share-based compensation awards, the assessment of loss contingencies, and income taxes.

 

Valuation of Inventory - Our inventory is stated at the lower of cost, determined using the first-in, first-out (“FIFO”) method, or net realizable value. Determining the net realizable value of inventory involves the use of judgment. In assessing the net realizable value of inventory, we consider factors including estimates of the future demand for our products, historical turn-over rates, and the age and sales history of the inventory. When necessary, we adjust the carrying value of inventory for estimated inventory shrinkage and damage. We estimate inventory shrinkage between physical counts and product damage based upon our historical experience. Actual results differing from these estimates could significantly affect our inventory and cost of products sold. We take physical counts of inventory on hand, at least annually and adjust our financial statements to match actual quantities counted.

 

Assessment of Long-Lived Assets for Impairment - Long-lived assets, such as office furniture, fixtures and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The recoverability of long-lived assets is assessed by comparing the net carrying amount of each asset to its total estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds the sum of its undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

 

Valuation of Share-Based Compensation Awards - The Company uses the Black Scholes option pricing model to calculate the fair value of share-based compensation awards (such as stock options and warrants). The Black Scholes pricing model requires six data inputs: (1) the contractual exercise or strike price, (2) the expected life (in years), (3) the risk-free interest rate, (4) the current stock price, (5) the expected volatility for the Company’s Common Stock, and (6) the expected dividend yield. Changes to these data inputs could result in a significantly higher or lower fair value measurement.

 

Loss Contingencies - From time to time, we are involved in legal proceedings. We record a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable. We also perform an assessment of the materiality of loss contingencies where a loss is either not probable or it is reasonably possible that a loss could be incurred in excess of amounts accrued. If a loss or an additional loss has at least a reasonable possibility of occurring and the impact on the financial statements would be material, we provide disclosure of the loss contingency in the notes to our consolidated financial statements. We review all contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or the range of the loss can be made. An adverse judgment or negotiated resolution in any of these matters could have a material adverse effect on our business, financial position, results of operations or cash flows.

 

Income Taxes - Income taxes have a significant effect on our net earnings. As of March 31, 2022, we are subject to income taxes primarily in the U.S. The determination of our provision for income taxes requires judgment, the use of estimates in certain cases and the interpretation and application of complex tax laws and regulations. Our effective income tax rate is affected by many factors, including changes in our assessment of certain tax contingencies, increases and decreases in valuation allowances, changes in tax law, outcomes of administrative audits, the impact of discrete items, and may fluctuate as a result.

 

The benefits of uncertain tax positions are recorded in our financial statements only after determining a more likely than not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. When facts and circumstances change, we reassess these probabilities and record any changes in the financial statements as appropriate. We account for uncertain tax positions by determining the minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. This determination requires the use of judgment in evaluating our tax positions and assessing the timing and amounts of deductible and taxable items.

 

Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent that a portion is not more likely than not to be realized. Many factors are considered when assessing whether it is more likely than not that the deferred tax assets will be realized, including recent cumulative earnings, expectations of future taxable income, carryforward periods and other relevant quantitative and qualitative factors. The recoverability of the deferred tax assets is evaluated by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. This evaluation relies on estimates.

 

Recent Accounting Pronouncements and Accounting Changes

 

The information contained in Note 2 of the Notes to Consolidated Financial Statements, under the sub-headings: “Recently Issued Accounting Standards - Pending Adoption” and “Recently Issued Accounting Standards – Recently Adopted,” in ITEM 8 “Financial Statements and Supplementary Data” below, is incorporated herein by reference.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act, and, accordingly, are not required to provide the information required by Item 7A of this Annual Report.

 

27

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Index to Consolidated Financial Statements

 

    Page
     
Report of Independent Registered Public Accounting Firm (PCAOB No. 6121)   29
     
Consolidated Balance Sheets as of March 31, 2022, and 2021   31
     
Consolidated Statements of Operations and Comprehensive Loss for the Fiscal Years ended March 31, 2022, and 2021   32
     
Consolidated Statements of Cash Flows for the Fiscal Years ended March 31, 2022, and 2021   33
     
Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years ended March 31, 2022, and 2021   34
     
Notes to the Consolidated Financial Statements   35

 

28

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Sharing Services Global Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Sharing Services Global Corporation, formerly Sharing Services, Inc. (the “Company”) as of March 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, cash flows and changes in stockholders’ equity, for the each of the two fiscal years in the 23-month period ended March 31, 2022 and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two fiscal years in the 23-month period ended March 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the Board of Directors and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Employee Stock Warrants

 

As described in Note 2 and Note 17 to the consolidated financial statements, the Company granted warrants to its employees and officers in connection with multi-year employment agreements which are exercisable at a variable exercise price.

 

The principal considerations for our determination that performing procedures relating to the valuation of employee stock warrants is a critical audit matter were (i) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the warrants due to the significant amount of judgment by management when developing the estimate; (ii) significant audit effort was required in evaluating the significant assumptions relating to the estimates.

 

Our audit of the valuation of employee stock warrants included, but was not limited to, the following procedures:

 

  understanding of controls relating to stock warrants granted;
  examining original employment agreements;
  reviewing management’s assumptions used in the valuation and revaluation of the fair value;
  reviewing management’s criteria of allocation of expenses between compensatory expense and non-operating expense;
  reviewing the fair value computations of the warrants at each revaluation date;
  obtaining technical guidance from third party experts on the accounting treatment;
  evaluating the sufficiency of the Company’s disclosures relating to share- based payments.

 

29

 

 

Investment in Unconsolidated Entities

 

As described in Note 9 to the consolidated financial statements, the Company made investments in certain unconsolidated entities.

 

The principal considerations for our determination that performing procedures relating to the valuation of the investments is a critical audit matter were (i) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the investments due to the significant amount of judgment by management when developing the estimate; (ii) significant audit effort was required in evaluating the significant assumptions relating to the estimates.

 

Our audit of the valuation of investment in unconsolidated entities included, but was not limited to, the following procedures:

 

  understanding of controls relating to investments made;
  examining original investment agreements;
  reviewing management’s assumptions used in the valuation and revaluation of the fair value of the investment;
  reviewing management’s criteria of allocation of fair value between components of investment;
  obtaining technical guidance from third party experts on the accounting treatment;
  reviewing management’s assumptions for impairment of investment;
  evaluating the valuation and presentation of the unrealized gain/loss on investments;
  evaluating the adequacy of the Company’s disclosures relating to investment in unconsolidated entities;

 

Related Party Convertible Note Payable

 

As described in Note 9 to the consolidated financial statements, the Company entered into a securities purchase agreement with a related party pursuant to which a convertible note was issued with detached warrants.

 

The principal considerations for our determination that performing procedures relating to the accounting treatment of the transaction is a critical audit matter were (i) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the transaction due to the significant amount of judgment by management when developing the estimate; (ii) significant audit effort was required in evaluating the significant assumptions relating to the estimates.

 

Our audit of the valuation of the convertible notes payable and attached warrants included, but was not limited to, the following procedures:

 

  understanding of controls relating to the loan raised;
  examining original convertible note and warrants agreements;
  reviewing management’s assumptions used in the valuation of the note, warrants and related interest and fee;
  reviewing management’s criteria of allocation of fair value allocation between note and warrants;
  obtaining technical guidance from third party experts on the accounting treatment;
  reviewing management’s assumptions for accounting treatment of the whole transaction;
  evaluating the adequacy of the Company’s disclosures relating to the loan raised from related party;

 

Income Taxes

 

As described in Note 2 and Note 14 to the consolidated financial statements, the Company uses the asset and liability method in accounting for income taxes. The Company recognizes deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases (“temporary differences”).

 

The principal considerations for our determination that auditing income tax matters is a critical audit matter included the significant judgment made by management when considering factors in assessing the more-likely-than-not tax position. In turn, such management’s assessment led to challenging and subjective auditor judgment in performing our audit procedures.

 

Our audit of income tax matters included, but was not limited to, the following procedures:

 

  understanding of controls relating to management assessment of the tax positions;
  reviewing management’s tax computations, testing the completeness and accuracy of data used in computations;
  evaluating the appropriateness of the tax positions.

 

/s/ Ankit Consulting Services, Inc.

 

We have served as the Company’s auditor since September 2017.

Rancho Santa Margarita, California

June 20, 2022

 

30

 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

           
   As of March 31, 
   2022   2021 
ASSETS          
Current Assets          
Cash and cash equivalents  $17,023,266   $12,144,409 
Trade accounts receivable   1,682,958    1,514,359 
Income taxes receivable   300,000    1,011,740 
Notes receivable, net   -    94,600 
Inventory, net   4,374,236    2,471,310 
Other current assets, net   3,511,282    2,403,634 
Total Current Assets   26,891,742    19,640,052 
Property and equipment, net   9,585,141    887,950 
Right-of-use assets, net   593,389    428,075 
Deferred income taxes, net   

81,205

    1,873,170 
Investment in unconsolidated entities   5,063,940    - 
Intangible assets, net   688,670    188,567 
Other assets   260,637    219,142 
TOTAL ASSETS  $43,164,724   $23,236,956 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities          
Accounts payable  $985,139   $1,295,174 
Accrued sales commission payable   3,745,481    4,713,777 
Employee stock warrants liability   452,050    3,132,161 
State and local taxes payable   1,339,366    1,048,717 
Note payable   -    1,040,400 
Accrued and other current liabilities   3,079,782    4,827,414 
Convertible notes payable, net of unamortized debt discount of $18,136,631 and unamortized deferred financing costs of $2,014,599 in 2022 and unamortized debt discount of $369 in 2021   9,898,770    99,631 
Total Current Liabilities   19,500,588    16,157,274 
Convertible notes payable, net of unamortized debt discount of $15,238 in 2021   -    34,762 
Settlement liability, long-term   373,677    808,071 
Lease liability, long-term   461,515    77,810 
TOTAL LIABILITIES   20,335,780    17,077,917 
Commitments and contingencies   -    - 
Stockholders’ Equity   -    - 
Preferred stock, $0.0001 par value, 200,000,000 shares authorized:          
Series A convertible preferred stock, $0.0001 par value, 100,000,000 shares designated, 3,100,000 shares and 5,100,000 shares issued and outstanding in 2022 and 2021, respectively   310    510 
Series B convertible preferred stock, $0.0001 par value, 10,000,000 shares designated, no shares issued and outstanding   -    - 
Series C convertible preferred stock, $0.0001 par value, 10,000,000 shares designated, 3,220,000 shares and 3,230,000 shares issued and outstanding in 2022 and 2021, respectively   322    323 
Common Stock, $0.0001 par value, 500,000,000 Class A shares authorized, 288,923,969 shares and 160,100,769 shares issued and outstanding in 2022 and 2021, respectively   28,892    16,010 
Common Stock, $0.0001 par value, 10,000,000 Class B shares authorized, no shares issued and outstanding   -    - 
Additional paid in capital   80,738,719    43,757,768 
Shares to be issued   12,146    12,146 
Accumulated deficit   (57,886,336)   (37,627,718)
Accumulated other comprehensive loss   (65,109)   - 
Total Stockholders’ Equity   22,828,944    6,159,039 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $43,164,724   $23,236,956 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

31

 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

           
     
   For the Fiscal Years Ended March 31, 
   2022   2021 
Net sales  $34,424,314   $64,811,151 
Cost of goods sold   10,801,871    18,264,494 
Gross profit   23,622,443    46,546,657 
Operating expenses          
Selling and marketing expenses   17,239,655    29,740,974 
General and administrative expenses   19,714,963    18,983,209 
Total operating expenses   36,954,618    48,724,183 
Operating loss   (13,332,175)   (2,177,526)
Other income (expense)          
Interest expense, net   (12,204,444)   (47,613)
Gain on employee warrants liability   2,511,350    530,335 
Gain on extinguishment of debt   1,040,400    - 
Impairment loss on assets   (1,610,523)   - 
Unrealized gain on investments   3,663,940    - 
Other non-operating expense   (211,035)   (134,726)
Total other income (expense), net   (6,810,312)   347,996 
Loss before income taxes   (20,142,487)   (1,829,530)
Income tax benefit   (3,035,990)   (594,509)
Net loss  $(17,106,497)  $(1,235,021)
Other comprehensive loss (net of tax):          
Currency translation adjustments   (65,109)   - 
Total other comprehensive loss   (65,109)   - 
Comprehensive loss  $(17,171,606)  $(1,235,021)
Loss per share:          
Basic and diluted  $(0.08)  $(0.01)
Weighted average shares:          
Basic and diluted   206,211,711    172,046,517 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

32

 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

           
   For the Fiscal Years Ended March 31, 
   2022   2021 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(17,106,497)  $(1,235,021)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   655,267    163,248 
Stock-based compensation   (2,120,111)   3,578,707 
Deferred income taxes   (1,038,359)   (536,862)
Amortization of debt discount and other   12,231,501    18,647 
Gain on extinguishment of debt   (1,040,400)   - 
Impairment loss on assets   2,331,554    - 
(Gain) loss on investments and other assets   (3,663,940)   114,599 
Non-cash consulting expense   

632,877

    - 
Provision for inventory obsolescence   635,137    1,095,068 
Changes in operating assets and liabilities:          
Accounts receivable   (163,599)   2,562,491 
Inventory   (2,579,581)   1,235,523 
Other current assets   1,098,003    (1,348,655)
Security deposits   (459)   (20,967)
Accounts payable   (304,637)   524,124 
Income taxes payable   (2,110,592)   (714,692)
Lease liability   (19,073)   2,617 
Accrued and other liabilities   (2,663,745)   (7,005,797)
Net Cash Used in Operating Activities   (15,226,654)   (1,566,970)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Payments for property and equipment   (9,331,967)   (914,336)
Payments for intangible assets   -    (190,151)
Payments for notes receivable   (579,790)   (204,879)
Collections of notes receivable   5,000    113,727 
Payment for acquisition of nonconsolidated interests   (2,937,000)    - 
Net Cash Used in Investing Activities   (12,843,757)   (1,195,639)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issuance of common stock   3,078,607    3,023,390 
Repayments of convertible notes payable   (100,000)   - 
Proceeds from convertible notes payable   30,000,000    - 
Proceeds from issuance of promissory notes payable   -    1,040,400 
Repurchase of common stock   -    (899,500)
Net Cash Provided by Financing Activities   32,978,607    3,164,290 
IMPACT OF CURRENCY RATE CHANGES ON CASH   (29,339)   - 
Increase in cash and cash equivalents   4,878,857    401,681 
Cash and cash equivalents, beginning of fiscal year   12,144,409    11,742,728 
Cash and cash equivalents, end of fiscal year  $17,023,266   $12,144,409 
           
Supplemental cash flow information          
Cash paid for interest  $52,541   $5,071 
Cash paid for income taxes  $47,489   $828,233 
Supplemented disclosure of non-cash investing and financing activities:          
Related party loan fees, consulting fees, and interest obligations settled with shares of common stock  $8,900,000   $- 
Investment origination fee collected in shares of investee stock  $500,000   $- 
Right-of-use assets obtained in exchange for operating lease liability  $523,998   $164,970 
Settlement obligation satisfied with shares of common stock  $-   $400,000 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

33

 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Fiscal Years Ended March 31,2022 and 2021

 

                                                                            
   Series A
Preferred Stock
   Series B
Preferred Stock
   Series C
Preferred Stock
   Common Stock                             
   Number of Shares   Par Value   Number of Shares   Par Value   Number of Shares   Par Value   Number of Shares   Par Value   Additional Paid In Capital   Subscription Receivable   Shares to be Issued   Treasury Stock   Accumulated Deficit   Accumulated Other Comprehensive Loss   Total 
Balance - April 30, 2020   32,478,750   $3,248    10,000,000   $1,000    3,490,000   $349    136,072,386   $13,607   $38,871,057   $(114,405)  $11,785   $(1,532,355)  $(33,992,697)  $-   $3,261,589 
Common stock issued for cash   -    -    -    -    -    -    30,000,000    3,000    5,397,000    -    -    -    (2,400,000)   -    3,000,000 
Common stock issued upon settlement of litigation   -    -    -    -    -    -    10,000,000    1,000    399,000    -    -    -    -    -    400,000 
Preferred stock retired   (5,628,750)   (563)   -    -    -    -    -    -    563    -    -    -    -    -    - 
Conversions of preferred stock   (21,750,000)   (2,175)   (10,000,000)   (1,000)   (260,000)   (26)   32,010,000    3,201    -    -    -    -    -    -    - 
Common stock redeemed upon settlement of stockholder litigation   -    -    -    -    -    -    (38,308,864)   (3,831)   (1,528,524)   -    -    1,532,355    -    -    - 
Repurchase and retirement of common stock   -    -    -    -    -    -    (17,500,000)   (1,750)   (897,750)   -    -    -    -    -    (899,500)
Stock-based compensation expense   -    -    -    -    -    -    -    -    2,201,004    -    -    -    -    -    2,201,004 
Proceeds from common stock warrants exercised   -    -    -    -    -    -    -    -    -    -    23,390    -    -    -    23,390 
Stock warrants exercised   -    -    -    -    -    -    7,827,247    783    (570,177)   -    (23,029)   -    -    -    (592,423)
Subscription receivable impaired   -    -    -    -    -    -    -    -    (114,405)   114,405    -    -    -    -    - 
Net loss   -    -    -    -    -    -    -    -    -    -    -    -    (1,235,021)   -    (1,235,021)
Balance – March 31, 2021   5,100,000   $510    -   $-    3,230,000   $323    160,100,769   $16,010   $43,757,768   $-   $12,146   $-   $(37,627,718)  $-   $6,159,039 
Common stock issued for cash   -    -    -    -    -    -    50,000,000    5,000    5,245,000    -    -    -    (2,250,000)   -    3,000,000 
Common stock issued for deferred financing costs and prepaid interest on debt   -    -    -    -    -    -    27,000,000    2,700    6,477,300    -    -    -    (1,080,000)   -    5,400,000 
Conversions or retirements of preferred stock   (2,000,000)   (200)   -    -    (10,000)   (1)   10,000    1    200    -    -    -    -    -    - 
Issuance of debt with beneficial conversion feature and in-the-money stock warrant, net of tax   -    -    -    -    -    -    -    -    21,330,000    -    -    -    -    -    21,330,000 
Expiration of common stock puts   -    -    -    -    -    -    -    -    -    -    -    -    177,879    -    177,879 
Stock-based compensation expense   -    -    -    -    -    -    -    -    280,000    -    -    -    -    -    280,000 
Stock warrants exercised   -    -    -    -    -    -    51,813,200    5,181    148,451    -    -    -    -    -    153,632 
Currency translation adjustments   -    -    -    -    -    -    -    -    -    -    -    -    -    (65,109)   (65,109)
Net loss   -    -    -    -    -    -    -    -    -    -    -    -    (17,106,497)   -    (17,106,497)
Balance – March 31, 2022   3,100,000   $310    -   $-    3,220,000   $322    288,923,969   $28,892   $80,738,719   $-   $12,146   $-   $(57,886,336)  $(65,109)  $22,828,944 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND BUSINESS

 

Sharing Services Global Corporation (“Sharing Services”) and its subsidiaries (collectively, the “Company”) aim to build shareholder value by developing or investing in innovative emerging businesses and technologies that augment the Company’s products and services portfolio as described below, business competencies, and geographic reach. The Company was incorporated in the State of Nevada in April 2015.

 

In June 2021, the Company, through a subsidiary, commenced operations in the Republic of Korea (South Korea).

 

Health and Wellness Products - The Company’s subsidiaries operating in the health and wellness products industry, which accounted for approximately 99% of the Company’s consolidated net sales during the fiscal year 2022 and 2021, market our products primarily through an independent sales force, using a direct selling business model under the proprietary brand “The Happy Co.” Currently, The Happy Co. TM markets and distributes its health and wellness products primarily in the United States (the “U.S.”) and Canada. In June 2021, the Company, through a subsidiary, commenced operations in the Republic of Korea (South Korea).

 

Subscription-Based Travel Services - Through its subsidiary, Hapi Travel Destinations, the Company established a subscription-based travel services business under the proprietary brand “Hapi Travel” in May 2022. The Hapi Travel TM services are designed to offer the opportunity to travel to destinations in the U.S. and abroad to people of all ages, demographics, and economic backgrounds. Hapi Travel provides entrepreneurial opportunities to its subscribers by capitalizing on both the direct selling model and the retail travel business model.

 

Company-Owned and Franchised Destination Cafes – In August 2021, Sharing Services and Hapi Café, Inc, a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, entered into a Master Franchise Agreement (the “MFA”) pursuant to which Sharing Services acquired the exclusive franchise rights in North America to the brand “Hapi Café.” Under the terms of the MFA, Sharing Services, directly or through its subsidiaries, has the right to operate no less than five (5) corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the MFA.

 

Targeted Ownership Interests – Directly or through its subsidiaries, the Company from time to time will invest in emerging businesses, using a combination of debt and equity financing, in efforts to leverage the Company’s resources and business competencies and to participate in the growth of these businesses. As part of the Company’s commitment to the success of these emerging businesses, the Company, directly or through its subsidiaries, also plans to offer non-traditional inventory financing, equity or debt financing, order fulfillment and logistic, CRM “Back Office” solutions, and other success-critical services to these businesses.

 

Corporate Name Change

 

Sharing Services Global Corporation was originally incorporated under the name Sharing Services, Inc. In January 2019, Sharing Services, Inc. changed its corporate name to Sharing Services Global Corporation to better reflect the Company’s strategic intent to grow its business globally. In connection with the name change, the Company adopted the trading symbol SHRG effective April 4, 2019. Prior to this the Company’s Common Stock traded under the symbol SHRV.

 

Change of Fiscal Year

 

In March 2021, Sharing Services changed its fiscal year-end from a fiscal year ending on April 30th to a fiscal year ending on March 31st. Accordingly, the accompanying financial statements reflect the results of operations and cash flows for the fiscal year ended March 31, 2022 (12 months) compared to the eleven months ended March 31, 2021.

 

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The following table sets forth certain information about the Company’s results of operations for the twelve (12) months ended March 31, 2022, and 2021. The information for the twelve (12) months ended March 31, 2021, represents unaudited pro-forma information.

 

           
   12 Months Ended March 31, 
   2022   2021 
Net sales  $34,424,314   $74,664,436 
Gross profit  $23,622,443   $53,630,538 
Loss from continuing operations  $(20,142,487)  $(1,988,501)
Loss before income taxes  $(20,142,487)  $(1,988,501)
Income tax benefit   (3,035,990)   (1,782,278)
Net loss  $(17,106,497)  $(206,223)
           
Basic and diluted loss per share  $(0.08)  $(0.00)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Reclassifications

 

Certain reclassifications have been made to the prior year’s data to conform with the current year’s presentation, primarily consisting of reclassification of the liability associated with uncertain tax positions of $904,643 as of March 31, 2021.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in accordance with GAAP requires the use of judgment and requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosures about contingent assets and liabilities, if any. Matters that require the use of estimates and assumptions include, among others: the recoverability of accounts receivable, the valuation of inventory, the useful lives of fixed assets, the assessment of long-lived assets for impairment, the nature and timing of satisfaction of multiple performance obligations resulting from contracts with customers, the allocation of the transaction price to multiple performance obligations in a sales transaction, the measurement and recognition of right-of-use assets and related lease liabilities, the valuation of share-based compensation awards, the provision for income taxes, the measurement and recognition of uncertain tax positions, and the valuation of loss contingencies, if any. Actual results may differ from these estimates in amounts that may be material to our consolidated financial statements. We believe that the estimates and assumptions used in the preparation of our consolidated financial statements are reasonable.

 

Cash and cash equivalents

 

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents include recent customer remittances deposited with our merchant processors at the balance sheet date, which generally settle within 24 to 72 hours. As of March 31, 2022, and 2021, cash and cash equivalents included cash held by our merchant processors of $3.3 million and $6.2 million, respectively, including $3.0 million and $4.9 million, respectively held by one merchant processor. In addition, as of March 31, 2022, and 2021, cash and cash equivalents held in bank accounts in foreign countries in the ordinary course of business were $1.4 million and $1.6 million, respectively. Amounts held by our merchant processor or held in bank accounts located in foreign countries are generally not insured by any federal agency.

 

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Accounts Receivable and Allowance for Doubtful Accounts

 

As of March 31, 2022, and 2021, accounts receivable was $1.7 million and $1.5 million, which represents primarily amounts due from one merchant processor of approximately $1.5 million and $1.5 million, respectively. On a quarterly basis, the Company evaluates the collectability of its accounts receivable and reviews current economic trends and its historical collection data to determine the adequacy of its allowance for doubtful accounts, if any, based on its historical collection data and current information. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of March 31, 2022, and 2021, the Company determined that no allowance was necessary.

 

Inventory and Cost of Goods Sold

 

Inventory consists of product held for sale in the normal course of our business. Inventory is stated at the lower of cost, determined using the first-in, first-out (“FIFO”) method, or net realizable value. Inventory cost reflects direct product costs and certain shipping and handling costs, such as in-bound freight. When estimating the net realizable value of inventory, we consider several factors including estimates of future demand for the product, historical turn-over rates, the age and sales history of the inventory, and historic and anticipated changes in our product offerings. See Note 6 – “INVENTORIES” below for more information.

 

Physical inventory counts are performed at all facilities on a quarterly basis. Between physical counts, management estimates inventory shrinkage based on the Company’s historical experience. The Company periodically assesses the realizability of its inventory based on evaluation of its inventory levels against historical and anticipated sales. During the fiscal year ended March 31, 2022, and 2021, the Company recognized a provision for inventory losses of $635,137 and $1.1 million, respectively, in connection with health and wellness products that were either damaged, expired, or slow-moving, based on the Company’s historical and anticipated sales. The Company reports its provisions for inventory losses in cost of goods sold in its consolidated statements of operations.

 

Cost of goods sold includes actual product costs, vendor rebates and allowances, if any, inventory shrinkage and certain shipping and handling costs, such as in-bound freight, associated with product sold. All other shipping and handling costs, including the cost to ship product to customers, are included in selling and marketing expenses in our consolidated statements of operations when incurred.

 

Property and Equipment

 

Property and equipment are recorded at cost and reported net of accumulated depreciation. Depreciation expense is recognized over an asset’s estimated useful life using the straight-line method. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the term of the related lease, including lease renewals considered reasonably assured. The estimated useful lives of our property and equipment are as follows:

 

Buildings and building improvements– shorter of 39 years or remaining useful life of the asset
Furniture and fixtures – 3 years
Office equipment – 5 years
Computer Equipment – 3 years
Computer software – 3 years
Leasehold improvements – shorter of the remaining lease term or estimated useful live of the asset

 

The estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. The recoverability of long-lived assets is assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable, by comparing the net carrying amount of each asset to the total estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 when (or as) it transfers control of the promised goods and services to the customer in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services.

 

Revenue is recognized net of amounts due to taxing authorities (such as local and state sales tax). The Company’s customers place sales orders online and through the Company’s “back-office” operations, which creates a contract and establishes the transaction price. With respect to products sold, the Company’s performance obligation is satisfied upon receipt of the products by the customer. With respect to subscription-based revenue, including independent distributor membership fees, the Company’s performance obligation is satisfied over time (generally, up to one year). With respect to customer loyalty points awarded, the Company’s performance obligation is satisfied at the earliest of (a) the redemption or expiration date, or (b) when it is no longer probable the points will be redeemed. The Company assesses the probability an awards of customer loyalty points will be redeemed, based on its historic breakage rates. The timing of revenue recognition may differ from the time when the Company invoices the customer and/or collects payment. The Company has elected to treat shipping and handling costs as an activity to fulfill its performance obligations, rather than a separate performance obligation.

 

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During the fiscal year ended March 31, 2022, a subsidiary of the Company introduced a Customer Loyalty Program which enables customers to earn points in a purchase transaction or through other means. The points are not redeemable for cash or product. Upon reaching 1,500 points, a customer may redeem the points and receive a $10 loyalty rewards card or certificate, that may be used when purchasing product. Points and loyalty rewards cards or certificates expire one year for the issuance date. However, points, loyalty rewards cards, and certificates are forfeited if the customer fails to remain active for a period of 90-days. The Company allocates a portion of the sales transaction price to each of its performance obligations therein, including points earned, and deferred revenue recognition until the earlier of (a) redemption or expiration of the rights conferred by the points or (b) the date when it is not probable the points will be redeemed (for example, because the holder is no longer an active customer).

 

As of March 31, 2022, and 2021, deferred revenue associated with product invoiced but not received by customers at the balance sheet date was $344,071 and $1.2 million, respectively; deferred revenue associated with unfulfilled performance obligations for services offered on a subscription basis was $70,968 and $153,216, respectively; deferred sales revenue associated with unfulfilled performance obligations for customers’ right of return was $63,890 and $95,780, respectively; and deferred sales revenue associated with customer loyalty points outstanding was $68,287 and $0, respectively. Deferred sales revenue is expected to be recognized over one year.

 

During the fiscal year ended March 31, 2022, and 2021, no individual customer, or related group of customers, represents 10% or more of our consolidated net sales. During the fiscal year ended March 31, 2022, approximately 66% of consolidated net sales were to consumers (including 32% to recurring customers, referred to herein as “SmartShip” sales, and approximately 34% to new customers) and approximately 34% of net sales were to independent distributors. During the fiscal year ended March 31, 2021, approximately 71% of our net sales were to consumers (including 43% to recurring customers, which we refer to as “SmartShip” sales, and approximately 28% to new customers) and approximately 29% of our net sales were to our independent distributors.

 

During the fiscal year ended March 31, 2022, and 2021, approximately 87% and 94%, respectively, of our consolidated net sales are to customers and independent distributors located in the U.S. (based on the customer’s shipping address). No other country represented more than 10% of total sales.

 

During the fiscal year ended March 31, 2022, substantially all the Company’s net sales are from health and wellness products (including approximately 33% from the sale of Nutraceutical products, approximately 32% from the sale of coffee and other functional beverages, approximately 11% from the sale of weight management products, and approximately 17% from the sale of all other health and wellness products). During the fiscal year ended March 31, 2021, approximately 99% of consolidated net sales are from our health and wellness products (including approximately 52% from the sale of Nutraceutical products, approximately 17% from the sale of coffee and coffee-related products, and approximately 30% from the sale of all other health and wellness products). During the fiscal year ended March 31, 2022, and 2021, our ten top selling products represent approximately 50% and 54%, respectively, of our consolidated net sales.

 

During the fiscal year ended March 31, 2022, and 2021, product purchases from one U.S.-based supplier accounted for approximately 64% and 99%, respectively, of total product purchases. In addition, during the fiscal year ended March 31, 2022, 33% of total product purchases were from one third-party supplier located in South Korea.

 

Sales Commissions

 

The Company recognizes sales commission expense when incurred. In the fiscal year ended March 31, 2022, and 2021, sales commission expense was approximately $16.3 million and $29.4 million, respectively, and is included in selling and marketing expenses in our consolidated statements of operations. The Company measures and recognizes sales commission expense based on the Company’s Distributor Compensation Plan. The Company’s independent distributors can earn commissions when they sell Company products to retail customers or to their downline independent distributors. Additionally, they can earn commissions when their personally sponsored distributors (or downline) sell products to end users. There is no limit as to the number of personally enrolled distributors or retail customers that an independent distributor may have and earned compensation for.

 

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Share-Based Payments

 

The Company accounts for stock-based compensation awards to its directors, officers, and employees in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). During the fiscal year 2020, the Company, through a subsidiary, entered into multi-year employment agreements with certain employees. In general, each employment agreement contains (a) an Initial Warrant that vested immediately and is exercisable at a fixed exercise price and (b) Subsequent Warrants that vest over time and are exercisable at an exercise price calculated by multiplying a specified discount rate by the 10-day average stock price determined at the time of exercise. Generally, a Subsequent Warrants tranche vests in full at each anniversary of the employment agreement effective date, during the contractual term of employment. See Note 17 – “STOCK-BASED COMPENSATION” for more information.

 

As stated above, some stock warrants issued in connection with these multi-year employment agreements are exercisable at a variable exercise price, a price equal to the discounted 10-day average stock price determined at the time of exercise. In general, the Company begins recognizing the compensatory nature of the warrants at the service inception date and ceases recognition at the vesting date. Due to the variable nature of the exercise price for some grants, however, the Company remeasures compensation expense associated with these awards after the service period ends and until the warrant is exercised or expires. As such, the Company’s stock-based compensation expense contains components associated with (i) awards that have a fixed exercise price whose fair value is measured at the grant date and (ii) awards with a variable exercise price whose value is measured at the balance sheet date, including fully vested awards. The Company recognizes the income/expense component associated with the subsequent measure of fully vested awards as non-operating income/expense.

 

In the fiscal year ended March 31, 2022, income recognized in connection with stock-based compensation awards was $2.3 million, including (a) compensatory expense of $186,264 and (b) income associated with the subsequent measure of fully vested awards (see preceding paragraph) of $2.5 million. In the fiscal year ended March 31, 2021, expense recognized in connection with stock-based compensation awards was $3.0 million, including (a) compensatory expense of $3.6 million and (b) income associated with the subsequent measure of fully vested awards of $530,335.

 

Lease Accounting

 

The Company determines if an arrangement is a lease at inception. Determining whether a contract contains a lease includes judgment regarding whether the contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration. The Company accounts for its lease obligations in accordance with ASC Topic 842, Leases, which requires lessees to, among other things, report on their balance sheets a right-of-use asset and a lease liability measured based on the present value of future lease payments over the term of the lease agreements for agreements classified as operating leases.

 

For all arrangements as a lessee, the Company has elected an accounting policy to combine non-lease components with the related-lease components and treat the combined items as a lease for accounting purposes. The Company measures lease related assets and liabilities based on the present value of lease payments, including in-substance fixed payments, variable payments that depend on an index or rate measured at the commencement date, and the amount the Company believes is probable the Company will pay the lessor under residual value guarantees when applicable. The Company discounts lease payments based on the Company’s estimated incremental borrowing rate at lease commencement (or modification), which is primarily based on the Company’s estimated credit rating, the lease term at commencement, and the contract currency of the lease arrangement. The Company has elected to exclude short term leases (leases with an original lease term less than one year) from the measurement of lease-related assets and liabilities.

 

The Company tests right-of-use assets in an operating or finance lease at the asset group level (because these assets are long-lived nonfinancial assets and should be accounted for the same way as other long-lived nonfinancial assets) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

The Company leases space for its corporate headquarters, warehouse space, automobiles, and office and other equipment, under lease agreements classified as operating leases. See Note 13 – “LEASES” below for more information about the Company’s lease obligations.

 

Foreign Currency

 

During the fiscal year ended March 31, 2022, and 2021, approximately 87% and 94%, respectively, of our consolidated net sales are denominated in U.S. Dollars. During the fiscal year ended March 31, 2022, and 2021, sales denominated in no other currency accounted for 10% or more of net sales.

 

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As part of its growth initiatives, the Company recently expanded operations outside the United States. The functional currency of each of our foreign operations is generally the respective local currency. Balance sheet accounts are translated into U.S. dollars (our reporting currency) at the rates of exchange in effect at the balance sheet date, while the results of operations and cash flows are generally translated using average exchange rates for the periods presented. Individually material transactions, if any, are translated using the actual rate of exchange on the transaction date. The resulting translation adjustments are recorded as a component of accumulated other comprehensive loss in our consolidated balance sheets.

 

In June 2021, the Company expanded its geographical footprint, and through its wholly owned subsidiary, commenced operations in the Republic of Korea (South Korea). The following exchange rates between the South Korean Won and the U.S. Dollar (“USD”) were used to translate the Company’s Korean operation’s financial statements:

 

   South Korean Won per USD 
Exchange rate as of March 31, 2022   1,212.99 
Average exchange rate for the fiscal year ended March 31, 2022   1,167.39 

 

Income Taxes

 

The Company uses the asset and liability method and follows ASC Topic 740 – Income Taxes (“ASC 740”) in accounting for its income taxes. The Company recognizes deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases (“temporary differences”). Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which temporary differences are anticipated to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in measuring results of operations in the period that includes the enactment date. Deferred tax assets are evaluated periodically, and a valuation allowance is recorded to reduce the carrying amounts of deferred tax assets to the amount expected to be realized unless it is more-likely-than-not that the assets will be realized in full. When assessing whether it is more-likely-than-not that the deferred tax assets will be realized, management considers multiple factors, including recent earnings history, expectations of future earnings, available carryforward periods, the availability of tax planning strategies, and other relevant quantitative and qualitative factors.

 

In determining the provision for income taxes, an annual effective income tax rate is used based on annual income, permanent differences between book and tax income, and statutory income tax rates. Accounting for income taxes involves judgment and the use of estimates.

 

The Company recognizes a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in its tax returns, unless the weight of available evidence indicates it is more-likely-than-not that the tax position will be sustained on audit, including resolution through available appeals processes. We measure the tax position as the largest amount which is more-likely-than-not of being realized. The Company considers many factors when evaluating and estimating the Company’s tax positions, which may require periodic adjustments when new facts and circumstances become known. See Note 14 – “INCOME TAXES” for more information about the Company’s accounting for income taxes.

 

Investments

 

Investments in which the Company has the ability to exercise significant influence, but does not have a controlling interest, are accounted for using the equity method of accounting. Significant influence is generally considered to exist when the Company has voting shares representing 20% to 50%, and other factors, such as representation on the board of directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. Under this method of accounting, the Company records its proportionate share of the net earnings or losses of equity method investments and a corresponding increase or decrease in the investment balances. Dividends received from equity method investments are recorded as reductions in the cost of such investments. The Company generally considers an ownership interest of 20% or higher to represent significant influence. The Company accounts for the investments in entities over which it has neither control nor significant influence, and no readily determinable fair value is available, using the investment’s cost minus any impairment, if necessary.

 

Investments are evaluated for impairment when facts or circumstances indicate that the fair value of a long-term investment is less than the carrying value. An impairment loss is recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near-term prospects of the investment; and (v) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

 

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Related Parties

 

A party is considered to be related to the Company if it, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its separate interests.

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) is defined as the increase or decrease in stockholders’ equity during a period as a result of transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. For each of the fiscal years presented herein, the Company’s components of comprehensive loss included net loss and foreign currency translation adjustments, as reported in the consolidated statements of operations and comprehensive loss.

 

Segment Reporting

 

The Company follows ASC Topic 280, Segment Reporting. The Company’s management reviews the Company’s consolidated financial results when making decisions about allocating resources and assessing the performance of the Company as a whole and has determined that the Company’s reportable segments are: (a) the sale of health and wellness products, and (b) the sale of other products and services. See Note 19 – “BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION” for more information about the Company’s reportable segments.

 

Recently Issued Accounting Standard - Adopted

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12, among other things, (a) eliminates the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income (or a gain) from other items, (b) eliminates the exception to the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss for the year, (c) requires than an entity recognize a franchise tax (or a similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, and (d) requires than an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation for the interim period that includes the enactment date. For public companies, these amendments are effective for fiscal years, and interim periods within those fiscal years, that begin after December 15, 2020. The Company adopted the provisions of ASU 2019-12 effective April 1, 2021, and such adoption did not have a material impact on its consolidated financial statements.

 

Recently Issued Accounting Standard - Pending Adoption

 

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain convertible instruments. Among other things, under ASU 2020-06, the embedded conversion features no longer must be separated from the host contract for convertible instruments with conversion features not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital. ASU 2020-06 also eliminates the use of the treasury stock method when calculating the impact of convertible instruments on diluted Earnings per Share. For the Company, the provisions of ASU 2020-06 are effective for its fiscal quarter beginning on April 1, 2024. Early adoption is permitted, subject to certain limitations. The Company is evaluating the potential impact of adoption on its consolidated financial statements.

 

NOTE 3 – FAIR VALUE MEASUREMENTS

 

The Company’s financial instruments consist of cash equivalents, if any, accounts receivable, notes receivable, investments in unconsolidated entities, accounts payable, and notes payable, including convertible notes. The carrying amounts of cash equivalents, if any, accounts receivable, notes receivable, and accounts payable approximate their respective fair values due to the short-term nature of these financial instruments.

 

The Company’s measures and discloses the fair value of its financial instruments under the provisions of ASC Topic 820 – Fair Value Measurement, as amended (“ASC 820”). The Company defines “fair value” as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level hierarchy for measuring fair value and requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There were no transfers between the levels of the fair value hierarchy during the periods covered by the accompanying consolidated financial statements.

 

41

 

 

Consistent with the valuation hierarchy contained in ASC 820, we categorized certain of our financial assets and liabilities as follows:

 

   As of March 31, 2022 
   Total   Level 1   Level 2   Level 3 
Assets                    
Investment in unconsolidated entities  $5,063,940   $    $    $5,063,940 
Notes receivable   -    -    -    - 
Total assets  $5,063,940   $    $    $5,063,940 
Liabilities                    
Convertible notes payable  $5,840,000   $-   $5,790,000   $50,000 
Total liabilities  $5,840,000   $-   $5,790,000   $50,000 

 

   As of March 31, 2021 
   Total   Level 1   Level 2   Level 3 
Assets                    
Notes receivable  $94,600   $-   $-   $94,600 
Total assets  $94,600   $-   $-   $94,600 
Liabilities                    
Notes Payable  $1,040,400   $-   $-   $1,040,400 
Convertible notes payable   134,393    -    -    134,393 
Total liabilities  $1,174,793   $-   $-   $1,174,793 

 

Certain of the Company’s investments in unconsolidated entities are valued for purposes of this disclosure using unobservable inputs, since there are no observable market transactions for such investments. The fair value of notes receivable approximates the carrying value due to the short-term nature of the note. See Note 5 below for more information about our notes receivable.

 

As of March 31, 2022, convertible notes payable (including current maturities) are reported in our consolidated financial statements at amortized cost of $30.1 million, less unamortized debt discount and deferred financing costs, in the aggregate, of $20.2 million. As of March 31, 2021, convertible notes payable (including current maturities) are reported in our consolidated financial statements at amortized cost of $150,000, less unamortized debt discount of $15,607. Notes payable and certain convertible notes payable are valued for purposes of this disclosure using discounted cash flows and observable interest rates whenever available. See Notes 10 and 12 below for more information about our notes and convertible notes payable.

 

NOTE 4 – EARNINGS (LOSS) PER SHARE

 

The Company calculates basic earnings (loss) per share by dividing net earnings (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is calculated similarly but reflects the potential impact of shares issuable upon the conversion or exercise of our outstanding convertible Preferred Stock, convertible notes payable, stock warrants and other commitments to issue Common Stock, except where the impact would be anti-dilutive, as defined in GAAP.

 

The following table sets forth the computations of basic and diluted earnings (loss) per share for the periods indicated:

 

           
   Fiscal Year Ended March 31, 
   2022   2021 
Net loss  $(17,106,497)  $(1,235,021)
           
Weighted average basic and diluted shares   206,211,711    172,046,517 
Earnings (loss) per share:          
Basic and diluted  $(0.08)  $(0.01)

 

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The following potentially dilutive securities and instruments were outstanding on the dates indicated, but excluded from the table above because their impact would be anti-dilutive:

 

           
   As of March 31, 
   2022   2021 
Convertible notes payable   158,403,141    10,406,100 
Stock warrants   68,475,290    34,128,212 
Convertible Preferred Stock   7,307,589    20,879,530 
Total potential incremental shares   234,186,020    65,413,842 

 

 

NOTE 5 – NOTES RECEIVABLE, NET

 

In January 2021, the Company, through a wholly owned subsidiary, and 1044PRO, LLC (“1044 PRO”) entered into a Funding Agreement pursuant to which the Company agreed to provide to 1044 PRO loans under a $250,000 revolving credit line. In December 2021, the parties to the Funding Agreement entered into a modification to the Funding Agreement pursuant to which the parties agreed to increase the amount of the revolving credit line to $310,000. Borrowings under the credit line, as amended, are payable in monthly installments in amounts determined in relation to the amount of each cash advance. In connection with the Funding Agreement, the Company acquired a 10% equity interest in 1044 PRO and a security interest in 1044 PRO’s cash receipts and in substantially all 1044 PRO’s assets.

 

On January 26, 2022, the parties to the Funding Agreement discussed in the preceding paragraph entered into a new Loan Agreement pursuant to which the Company agreed to loan to 1044Pro up to and additional $250,000, of which $125,000 was funded immediately. Borrowings under the Loan Agreement bear interest at 10%, are payable in full on or before July 26, 2023, and are secured by a security interest in substantially all 1044Pro’s assets and a security interest in 50% of 1044Pro’s members’ interest. Borrowings under the Loan Agreement are further secured by a personal guaranty executed by a member of 1044Pro.

 

On January 14, 2022, the Company and MojiLife, LLC (“MojiLife”), an unconsolidated subsidiary of the Company, entered into a loan agreement pursuant to which the Company agreed to provide to MojiLife a loan in the amount of $150,000. Borrowings are payable in equal monthly installment of $8,333 and are due in full on July 14, 2023.

 

On a quarterly basis, the Company evaluates the collectability of its notes receivable and reviews current economic trends and its historical collection data to determine the adequacy of its allowance for impairment losses based on its historical collection data and other relevant information. An estimate for impairment losses is recognized when collection of the full amount is no longer probable. Note balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

Notes receivable consist of the following:

 

   2022   2021 
   As of March 31, 
   2022   2021 
1044PRO, LLC  $436,520   $189,199 
MojiLife, LLC   150,000    - 
Other   15,000    20,000 
 Total   601,520    209,199 
Allowance for obsolescence   (601,520)   (114,599)
 Total Notes Receivable  $-   $94,600 

 

The following table reflects the activity in the allowance for impairment losses for the periods presented:

 SCHEDULE OF ALLOWANCE FOR IMPAIRMENT LOSSES

   2022   2021 
   Fiscal Year Ended March 31, 
   2022   2021 
Balance at beginning of fiscal year  $114,599   $- 
Provision for estimated impairment losses   491,921    114,599 
Write-offs and recoveries   (5,000)   - 
Balance at end of fiscal year  $601,520   $114,599 

 

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NOTE 6 – INVENTORY, NET

 

Inventory consists of the following:

 

   2022   2021 
   As of March 31, 
   2022   2021 
Finished Goods  $4,482,291   $2,556,368 
Allowance for obsolescence   (108,055)   (85,058)
Inventory, net  $4,374,236   $2,471,310 

 

The increase in finished goods as of March 31, 2022, compared to as of March 31, 2021, reflects the inventory of the Company’s South Korean subsidiary (primarily skin care products) that started its operations in June 2021, of approximately $1.9 million.

 

The following table reflects the activity in the allowance for inventory obsolescence for the periods presented:

   2022   2021 
   Fiscal Year Ended March 31, 
   2022   2021 
Balance at beginning of fiscal year  $85,058   $- 
Provision for estimated obsolescence   635,137    1,095,068 
Write-offs and recoveries   (612,140)   (1,010,010)
Balance at end of fiscal year  $108,055   $85,058 

 

NOTE 7 – OTHER CURRENT ASSETS, NET

 

Other current assets consist of the following:

 

   2022   2021 
   As of March 31, 
   2022   2021 
Prepaid consulting fees  $2,867,123   $- 
Inventory-related deposits   

384,477

    

1,845,722

 
Employee advances   -    320,631 
Prepaid insurance and other operational expenses   201,275    210,665 

Deposits for sales events

   222,540    

-

 
Right to recover asset   15,632    26,616 

Subtotal

   3,691,047    2,403,634 

Less: allowance for losses

   (179,765)   - 
Other current assets  $3,511,282   $2,403,634 

 

Prepaid consulting fees represent the fair value on the grant date of stock warrants issued to DSS in January 2022 for consulting services to be rendered over a year from the issue date (see Note 15 for more information). Prepaid insurance and other operational expenses consist of payments for goods and services (such as freight, trade show expenses and insurance premiums) which are expected to be realized in the next operating cycle. Right to recover asset is associated with our customers’ right of return and is expected to be realized in one year or less. As of March 31, 2022, and 2021, employee advances include $0 and $320,631, respectively, due from an employee in connection with payroll tax obligations associated with the exercise of compensatory stock warrants. In the fiscal year ended March 31, 2022, the Company recognized a provision for losses in connection with certain inventory-related deposits for which recoverability is less than certain.

 

NOTE 8 – PROPERTY AND EQUIPMENT, NET

 

Property and equipment consist of the following:

SUMMARY OF PROPERTY AND EQUIPMENT

   2022   2021 
   As of March 31, 
   2022   2021 
Building and building improvements  $

8,976,878

   $- 
Computer software   875,925    734,510 
Furniture and fixtures   237,045    230,685 
Computer equipment   223,424    197,419 
Leasehold improvements and other   

263,208

    106,877 
Total property and equipment   10,576,480    1,269,491 
Impairment of property and equipment   (100,165)   - 
Accumulated depreciation and amortization   (891,174)   (381,541)
Property and equipment,net   $9,585,141   $887,950 

 

Depreciation and amortization expense in connection with the Company’s property and equipment for the fiscal year ended March 31, 2022, and 2021 was $534,371 and $161,663, respectively. During the fiscal year ended March 31, 2022, the Company recognized an impairment loss of $100,165 in connection with its formal plans to reorganize its Korean operations. See Note 20, “SUBSEQUENT EVENTS” for more details.

 

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In December 2021, the Company, through as subsidiary, purchased an office building in Lindon, Utah for $8,942,640, including $3,675,000 allocated to land. The capitalized costs include legal and other professional fees incurred directly in connection with the purchase of the property. The Company assessed a useful life of the building (28 years). Depreciation and amortization expense for the fiscal year ended March 31, 2022, include $48,007 in connection with the building. On June 15, 2022, the Company and American Pacific Bancorp, Inc. (“APB”) entered a Loan Agreement pursuant to which APB loaned to the Company approximately $5.7 million. The loan is secured by a first mortgage interest on the Lindon, Utah building. See Note 20, “SUBSEQUENT EVENTS” for more details.

 

During the fiscal year ended March 31, 2021, the Company capitalized $715,354 in computer software in connection with upgrades to its information technology systems placed in service. In addition, during the fiscal year ended March 31, 2021, the Company incurred $163,106 in capitalizable costs primarily in connection with leasehold improvements for office facilities and ongoing upgrades to its information technology systems yet to be placed in service. These costs were reported in other assets in our consolidated balance sheets until the related assets were placed in service in 2022.

 

NOTE 9 – INVESTMENT IN UNCONSOLIDATED ENTITIES

 

In September 2021, the Company, Stemtech Corporation (“Stemtech”) and Globe Net Wireless Corp. (“GNTW”) entered into a Securities Purchase Agreement (the “SPA”) pursuant to which the Company invested $1.4 million in Stemtech in exchange for: (a) a Convertible Promissory Note in the amount of $1.4 million in favor of the Company (the “Convertible Note”) and (b) a detachable Warrant to purchase shares of GNTW common stock (the “GNTW Warrant”). Stemtech is a subsidiary of GNTW. As an inducement to enter into the SPA, GNTW agreed to pay to the Company an origination fee of $500,000, payable in shares of GNTW’s common stock. The Convertible Note matures on September 9, 2024, bears interest at the annual rate of 10%, and is convertible, at the option of the holder, into shares of GNTW’s common stock at a conversion rate calculated based on the closing price per share of GNTW’s common stock during the 30-day period ended September 19, 2021. The GNTW Warrant expires on September 13, 2024 and conveys the right to purchase up to 1.4 million shares of GNTW’s common stock at a purchase price calculated based on the closing price per share of GTNW’s common stock during the 10-day period ended September 13, 2021. In September 2021, GNTW issued to the Company 154,173 shares of its common stock, or less than 1% of the shares of GNTW then issued and outstanding, in payment of the origination fee.

 

The Company carries its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock at fair value in accordance with U.S. GAAP. During the fiscal year ended March 31, 2022, the Company recognized unrealized gains, before income tax, of $3.7 million in connection with its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock.

 

In September 2021, the Company entered into a Membership Unit Purchase Agreement pursuant to which the Company acquired a 30.75% equity interest in MojiLife, LLC, a limited liability company organized in the State of Utah, in exchange for $1,537,000. MojiLife is an emerging growth distributor of technology-based consumer products, such as cordless scent diffusers, for the home and the car, as well as proprietary home cleaning products and accessories.

 

Investment in unconsolidated entities consists of the following:

 

   2022   2021 
   As of March 31, 
   2022   2021 
Investment in detachable GNTW stock warrant  $3,570,000   $- 
Investment in GNTW common stock   393,141    - 
Investment in Stemtech convertible note   1,100,799    - 
Investment in MojiLife, LLC   1,537,000    - 
Subtotal   6,600,940    - 
Less, allowance for impairment losses   (1,537,000)   - 
Investments  $5,063,940   $- 

 

On a quarterly basis, the Company evaluates the recoverability of its investments and reviews current economic trends to determine the adequacy of its allowance for impairment losses based on each investee financial performance data and other relevant information. An estimate for impairment losses is recognized when recovery in fill of the Company’s investment is no longer probable. Investment balances are written off against the allowance after the potential for recovery is considered remote.

 

45

 

 

The following table reflects the activity in the allowance for impairment losses for the periods presented:

   2022   2021 
   Fiscal Year Ended March 31, 
   2022   2021 
Balance at beginning of fiscal year  $-   $- 
Provision for estimated impairment losses   1,537,000    - 
Balance at end of fiscal year  $1,537,000   $- 

 

NOTE 10 – NOTES PAYABLE

 

In May 2020, the Company was granted a loan (the “PPP Loan”) by a commercial bank in the amount of $1,040,400, pursuant to the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”). The Company’s borrowings under the PPP Loan were eligible for loan forgiveness pursuant to the CARES Act. As of March 31, 2021, loan principal in the amount of $1,040,400, excluding accrued but unpaid interest of $8,922, was outstanding. In May 2021, the Company was notified by the lender that the Company’s obligations under the PPP Loan were forgiven effective May 25, 2021.

 

NOTE 11 – ACCRUED AND OTHER CURRENT LIABILITIES

 

Accrued and other current liabilities consist of the following:

 SUMMARY OF ACCRUED AND OTHER CURRENT LIABILITIES

   2022   2021 
   As of March 31, 
   2022   2021 
Deferred sales revenues  $547,217   $1,449,359 
Liability associated with uncertain tax positions   921,987    904,643 
Accrued severance expense   -    700,000 
Payroll and employee benefits   478,360    523,454 
Settlement liability, current portion   341,919    376,921 
Lease liability, current portion   134,578    373,398 
Other operational accruals   655,721    499,639 
Accrued and other current liabilities  $3,079,782   $4,827,414 

 

Lease liability, current portion, represent obligations due withing one year under operating leases for office space, automobiles, and office equipment. See Note 13 – “LEASES” below for more information.

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consists of the following:

 

   Maturity  Interest   Conversion Price   As of March 31, 
Issuance Date  Date  Rate   (per share)   2022   2021 
April 2021  April 2024   8%  $0.20   $30,000,000   $- 
October 2017  October 2022   12%  $0.15    50,000    50,000 
April 2018  April 2021   0%  $0.01    -    100,000 
Total convertible notes payable         30,050,000    150,000 
Less: unamortized debt discount and deferred financing costs         20,151,230    15,607 
Subtotal         9,898,770    134,393 
Less: current portion of convertible notes payable         9,898,770    99,631 
Long-term convertible notes payable        $-   $34,762 

 

The Company’s convertible notes are convertible, at the option of the holder, into shares of the Company’s Common Stock at the conversion prices indicated above. The April 2018 convertible note was paid in full in March 2022.

 

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 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. HWH has informed the Company that it believes that during the term of the Note, the Company has granted more favorable financing terms to third-party lenders. As of the date of this Annual Report, the Company and HWH are evaluating alternative options to settle this Note in the foreseeable future.

 

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In April 2021, the Company and Decentralized Sharing Systems, Inc. (“DSSI”) 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. DSSI, is a subsidiary of DSS, Inc. (formerly Document Security Systems, Inc.) (“DSS”), and, together with DSS, is a majority shareholder of the Company. Under the terms of the loan, the Company agreed to pay to DSSI a loan origination fee of $3.0 million, payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. The Note bears interest at the annual rate of 8% and matures on April 5, 2024, subject to certain acceleration provisions upon the occurence of an Event of Default, as defined in the Note. In addition, the Note is payable on demand by the holder. Accordingly, the Company classifies as current its obligation under the Note. At any time during the term of the Note, all or part of the Note, including the principal amount less unamortized prepaid interest, if any, plus any accrued interest can be converted into shares of the Company’s Class A Common Stock at the rate of $0.20 per share, at the option of the holder. Interest on the Note is pre-payable annually in cash or in shares of the Company’s Class A Common Stock, at the option of the Company, except that interest for the first year is pre-payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share.

 

In connection with the issuance of the Note and the detachable Warrant, the Company allocated $15.0 million of the net proceeds from the loan to the detachable Warrant, allocated $12.0 million of the net proceeds to the beneficial conversion feature embedded in the Note and recognized deferred financing costs of $3.0 million. The resulting debt discount and the deferred financing costs are being amortized into interest expense over the term of the note (three years). During the fiscal year ended March 31, 2022, the Company issued 27,000,000 shares of its Class A Common Stock to DSSI, including 15,000,000 shares in payment of the loan origination fee discussed above and 12,000,000 shares in prepayment of interest for the first year. In connection therewith, the Company recognized a deemed dividend of $1,080,000 for the excess of the fair value of the shares issued over the amounts settled.

 

In the fiscal year ended March 31, 2022, and 2021, interest expense associated with the Company’s convertible notes was $2.4 million and $5,507, excluding amortization of debt discounts and deferred financing fees of $9.9 million and $18,647, respectively. These amounts are included in interest expense, net, in our consolidated statements of operations.

 

NOTE 13 – LEASES

 

The Company leases space for its corporate headquarters, warehouse space, automobiles, and office and other equipment, under lease agreements classified as operating leases. The Company has remaining lease terms of approximately 1 to 10 years on the remaining Leases. Leases with an initial term in excess of 12 months are recognized on the consolidated balance sheet based on the present value of future lease payments over the defined lease term at the lease commencement date. Future lease payments were discounted using an implicit rate of 10% to 12% in connection with most leases.

 

47

 

 

The following information pertains to the Company’s leases as of the balance sheet dates indicated:

 

Assets  Classification  2022   2021 
      As of March 31, 
Assets  Classification  2022   2021 
Operating leases  Right-of-use assets, net  $593,389   $428,075 
Total lease assets     $593,389   $428,075 
              
Liabilities             
Operating leases  Accrued and other current liabilities  $134,578   $373,398 
Operating leases  Lease liability, long-term   461,515    77,810 
Total lease liabilities     $596,093   $451,208 

 

Expense pertaining to the Company’s leases for the periods indicated is as follows:

 

      Fiscal Year Ended March 31, 
Lease cost  Classification  2022   2021 
Operating lease cost  General and administrative expenses  $585,015   $495,272 
Operating lease cost  Depreciation and amortization   -    - 
Operating lease cost  Interest expense, net   -    - 
Total lease cost     $585,015   $495,272 

 

The Company’s lease liabilities are payable as follows:

 

Twelve months ending March 31,   Amount 
2023   $154,310 
2024    96,944 
2025    99,458 
2026    102,231 
2027    105,048 
Thereafter    258,025 
Total remaining payments    816,016 
Less imputed interest    219,923 
Total lease liability   $596,093 

 

48

 

 

NOTE 14 – INCOME TAXES

 

Our consolidated provision for (benefit from) income taxes is as follows:

 

           
   Fiscal Year Ended March 31, 
   2022   2021 
Current:        
Federal  $(2,098,199)  $(326,121)
State and local   100,568    268,474 
Foreign   -    - 
Total current   (1,997,631)   (57,647)
Deferred:          
Federal   (1,038,359)   (536,862)
State and local   -     - 
Foreign   -     - 
Total deferred   (1,038,359)   (536,862)
Total consolidated income tax benefit  $(3,035,990)  $(594,509)

 

Our consolidated effective income tax rate reconciliation is as follows:

 

           
   Fiscal Year Ended March 31, 
   2022   2021 
Federal statutory rate   21.0%   21.0%
State and local income taxes   (0.5)   (11.6)
Prior period adjustments   -    45.6 
Change in valuation allowance for NOL carry-forwards   (6.7)   (5.3)
Effect of change in uncertain tax positions   -    (49.4)
Stock warrant transactions and other items   1.3    32.2 
Effective income tax rate   15.1%   32.5%

 

Our deferred tax asset (liability) is as follows:

 

         
   As of March 31, 
Deferred tax assets:  2022   2021 
Share-based compensation  $972,043   $873,970 
Accruals and reserves not currently deductible   649,113    247,348 
Impairment of investments and inventory   660,904    674,112 
Other   141,349    87,093 
Total deferred tax assets   2,423,409    1,882,523 
Less: valuation allowance   (2,342,204)   - 
Total deferred tax assets, net of valuation allowance   81,205    1,882,523 
Deferred tax liability:          
Other   -    9,353 
Total deferred tax liability   -    9,353 
Total consolidated deferred tax (liability) assets, net  $81,205  $1,873,170 

 

During the fiscal year ended March 31, 2022, the Company recognized a valuation allowance of $2.3 million in connection with certain deferred tax assets because of significant uncertainty about the Company’s ability to generate sufficient earnings in the foreseeable future to realize such assets. During the fiscal year ended March 31, 2022, and 2021, the Company recognized, in the aggregate, $491,496 and $91,931, respectively, in deferred income tax benefits in connection with certain foreign start-up operation. In addition, the Company recognized a valuation allowance of $491,496 and $91,931, respectively, in connection with the associated deferred tax assets because these star-up operations do not yet have a history of earnings and profits.

 

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The Company has adopted the comprehensive model for how an entity should recognize, measure, present, and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return, consistent with ASC 740. Accordingly, the Company recognizes the impact of tax positions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of March 31, 2022, and 2021, the Company had recognized a liability of $17,334 and $904,643, respectively, related to uncertain income tax positions, which is reported in other current liabilities. As of March 31, 2022, and 2021, the Company had unrecognized tax benefits of $921,977 and $904,643, respectively, that, if recognized, would impact the Company’s effective tax rate.

 

A reconciliation of the Company’s unrecognized tax benefits for the years indicated is as follows:

 

   Fiscal Year Ended March 31, 
   2022   2021 
Balance at beginning of fiscal year  $904,643   $- 
Additions for tax positions related to the current year   17,334    - 
Additions for tax positions of prior years   -    904,643 
Reductions of tax positions of prior years   -    - 
Settlements   -    - 
Balance at end of fiscal year  $921,977   $904,643 

 

The company recognizes interest and/or penalties related to uncertain tax positions in current income tax expense. For the year ended March 31, 2022, and 2021, the Company had recognized accrued interest and penalties, in the aggregate, of $121,790 and $334,332, respectively. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase or decrease in the next twelve months due to uncertainties regarding timing and outcome of any examinations, the Company is evaluating alternatives that may impact the recognition of uncertain tax positions in the next twelve months.

 

The Company files consolidated federal income tax returns in the United States and files income tax returns in various state and foreign jurisdictions. As of March 31, 2022, the Company’s income tax returns for the following tax years remained subject to examination:

 

Tax Jurisdiction  Open Years 
United States   20162021 
Republic of Korea   2021 
Other Countries   N/A 

 

NOTE 15 – RELATED PARTY TRANSACTIONS

 

DSS, Inc., and Decentralized Sharing Systems, Inc.

 

In July 2020, the Company and Heng Fai Ambrose Chan, a Director of the Company, entered into a Stock Purchase and Share Subscription Agreement (the “SPA Agreement”) pursuant to which Mr. Chan invested $3.0 million in the Company and the Company agreed to issue 30.0 million shares of the Company’s Class A Common Stock and a fully vested Stock Warrant to purchase up to 10.0 million shares of the Company’s Class A Common Stock at an exercise price of $0.20 per share. Concurrently with the SPA Agreement, Mr. Chan and DSS, then a major shareholder of the Company, entered into an Assignment and Assumption Agreement pursuant to which Mr. Chan assigned to DSS all interests in the SPA Agreement. In July 2020, the Company issued 30.0 million of its Class A Common Stock pursuant to the SPA Agreement. The Stock Warrant issued pursuant to the SPA Agreement expires on the third anniversary from the issuance date, unless exercised earlier.

 

In April 2021, the Company and DSSI entered into a Securities Purchase Agreement, pursuant to which DSSI granted a $30.0 million loan to the Company in exchange for: (a) a Convertible Promissory Note in the principal amount of $30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Stock Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share. At any time during the term of the Note, all or part of the Note, including the principal amount less unamortized prepaid interest, if any, plus any accrued interest can be converted into shares of the Company’s Class A Common Stock at the rate of $0.20 per share, at the option of the holder. Under the terms of the loan agreement, the Company agreed to pay to DSSI a loan origination fee of $3.0 million, payable in shares of the Company’s Class A Common Stock, with the number of shares to be calculated at the rate of $0.20 per share. In April 2021, Sharing Services issued 27.0 million shares of its Class A Common Stock to DSSI, including 15.0 million shares in payment of the loan origination fee and 12.0 million shares in prepayment of interest on a loan for the first year, as more fully discussed in Note 11 above.

 

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In December 2021, the Company and DSSI entered into a Stock Purchase and Share Subscription Agreement pursuant to which DSSI invested $3,000,000 in the Company in exchange for 50.0 million shares of Class A Common Stock (the “Shares”) and stock warrants (the “Stock Warrants”) to purchase up to 50.0 million shares of the Company’s Class A Common Stock. The Stock Warrants are fully vested, have a term of five (5) years and are exercisable at any time prior to expiration, at the option of DSSI, at a per share price equal to $0.063. On the effective date of the Stock Purchase and Share Subscription Agreement, the closing price for the Company’s common stock was $0.075 per share and the Company recognized a deemed dividend of $2.3 million in connection with the transaction.

 

In January 2022, the Company and DSS who, together with its subsidiaries, is currently a majority shareholder of the Company, entered into a one-year Business Consulting Agreement (the “Consulting Agreement”) pursuant to which the DSS will provide to the Company certain consulting services, as defined in the Consulting Agreement. The Consulting Agreement may be terminated by either party on a 60-day’s written notice. In connection with the Consulting Agreement, the Company agreed to pay DSS and flat monthly fee of sixty thousand dollars ($60,000) and DSS received a fully vested detachable Stock Warrant to purchase up to 50.0 million shares of the Company’s Class A Common Stock, at the exercise price of $0.0001 per share. On the effective date of the Consulting Agreement, the closing price of the Company’s common stock was $0.07 per share and the fair value of the Stock Warrant was $3.5 million. The fair value of the Stock Warrant is being recognized as consulting expense over the term of one year. During the fiscal year ended March 31, 2022, the Company recognized consulting expense of $766,415 in connection with the Consulting Agreement. In February 2022, the Company issued 50.0 million shares of its Common Stock Class A to DSS in connection with exercise of the Stock Warrant.

 

As of March 31, 2022, DSS and its affiliates owned, in the aggregate, 191.9 million shares of the Company’s Class A Common Stock, excluding 210.0 million shares issuable upon the exercise of warrants held by DSS and 150.0 million shares issuable upon conversion of the Note discussed in the third preceding paragraph. 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 Chairman of the Board of Directors of the Company. Mr. Thatch also serves as President, CEO and Vice Chairman of the Board of Directors of the Company.

 

Alset Title Company, Inc.

 

In December 2021, Sharing Services, through one of its subsidiaries, purchased an office building in Lindon, Utah for $8,942,640. In connection therewith, Alset Title Company, Inc. (“Alset Title”), a subsidiary of DSS, acted as escrow and closing agent for the transaction, at no cost. DSS, together with its subsidiaries, is a majority shareholder of the Company.

 

Hapi Café, Inc.

 

In November 2021, Sharing Services and Hapi Café, Inc, a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, entered into a Master Franchise Agreement pursuant to which Sharing Services acquired the exclusive franchise rights in North America to the brand “Hapi Café.” Under the terms, Sharing Services, directly or through its subsidiaries, has the right to operate no less than five (5) corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the Master Franchise Agreement.

 

HWH International, Inc.

 

In October 2017, Sharing Services 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 became a Director of the Company in April 2020. 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. As of the date of this Quarterly Report, the Company and HWH are evaluating alternative options to settle this Note in the foreseeable future.

 

HWH World, Inc.

 

A subsidiary of the Company operating in the Republic of Korea subleases office space from HWH World, Inc. (“HWH World”), a subsidiary of DSS and a company affiliated with Heng Fai Ambrose Chan, a Director of the Company. Pursuant to the terms of the sublease agreement, the Company recognized a right-of-use asset and an operating lease liability of $261,835 in connection therewith. In fiscal year ended March 31, 2022, the Company recognized expense of $222,092 in connection this lease. As of March 31, 2022, accounts payable includes payments due to HWH World under the lease of $213,742. In May 2022, the Company and HWH World amended the related sublease agreement to significantly reduce the space subleased by the Company and the related rent obligation.

 

In September 2021, the Company and HWH World entered into an Advisory Agreement pursuant to which the Company provides strategic advisory services to HWH World in connection with its North America expansion plans in exchange for a monthly fee of $10,000. During the fiscal year ended March 31, 2022, the Company recognized consulting income of $76,700 in connection therewith.

 

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Impact Biomedical, Inc.

 

In the fiscal year ended March 31, 2022, a wholly owned subsidiary of the Company purchased health and wellness products from Impact Biomedical, Inc., a subsidiary of DSS, in the aggregate amount of $111,414.

 

K Beauty Research Lab. Co., Ltd

 

In the fiscal year ended March 31, 2022, a wholly owned subsidiary of the Company purchased skin care products manufactured by K Beauty Research Lab. Co., Ltd (“K Beauty”), a South Korean-based supplier of skin care products that is affiliated with Heng Fai Ambrose Chan, a Director of the Company, in the aggregate amount of $2.3 million. The Company’s affiliates operating in Asia intend to distribute skin care and other products in South Korea and other countries, including skin care products procured from K Beauty, as part of the Company’s previously announced strategic growth plans.

 

Premier Packaging Corporation

 

In the fiscal year ended March 31, 2022, a wholly owned subsidiary of the Company issued purchase orders to Premier Packaging Corporation, a subsidiary of DSS, to acquire printed packaging materials in the aggregate amount of $155,693.

 

Alchemist Holdings, LLC

 

In February 2020, the Company, Alchemist Holdings, LLC (“Alchemist”), and a former Company officer entered into a Settlement Accommodation Agreement (the “Accommodation Agreement”) pursuant to which Alchemist and the former Company officer agreed to transfer to the Company 22.7 million shares of the Company’s Common Stock held by Alchemist, in settlement of certain obligations to the Company. Under the terms of the Accommodation Agreement, Alchemist and the former Company officer also agreed to transfer to the Company 15.6 million shares of the Company’s Common Stock held by Alchemist, to offset certain legal and other expenses incurred by the Company in connection with various related-party legal claims. Accordingly, in the fiscal year ended March 31, 2021, the Company and Alchemist caused the transfer to the Company, in the aggregate, of 38.3 million shares of the Company’s Common Stock then held by Alchemist, and the Company retired such redeemed shares.

 

In June 2020, the Company and the former Company officer discussed in the preceding paragraph entered into a Settlement Accommodation Agreement and an Amended and Restated Founder Consulting Agreement pursuant to which the Company and the former officer agreed to settle all existing disputes between them, the former officer agreed to continue to provide certain consulting services to the Company, and the Company agreed to pay certain amounts to the former officer. The Company has recognized a settlement liability of $2.0 million in connection therewith. As of March 31, 2022, the settlement liability balance is $715,596.

 

The Company subleases warehouse and office space from Alchemist, a 10% shareholder of the Company. During the fiscal year ended March 31, 2022, and 2021, rent expense associated with such sublease agreement was $105,105 and $84,918, respectively.

 

American Premium Water Corporation

 

In July 2021, the Company and American Premium Water Corporation (“American Premium”) entered into a business consulting agreement pursuant to which the Company provides consulting services to American Premium in exchange for a monthly fee of $4,166. Mr. John “JT” Thatch, a director of the Company, also serves on the Board of Directors of American Premium. During the fiscal year ended March 31, 2022, the Company recognized consulting fee income of $33,328.

 

NOTE 16 - STOCKHOLDERS’ EQUITY – CAPITAL STOCK

 

Preferred Stock

 

The Company’s Board of Directors (the “Board”) has authorized the issuance of up to 200,000,000 shares of Preferred Stock, par value of $0.0001 per share. The Board may divide this authorization into one or more series, each with distinct powers, designations, preferences, and rights.

 

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Series A Convertible Preferred Stock

 

The Board has authorized the issuance of up to 100,000,000 shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”). Shares of our Series A Preferred Stock are senior in rank to shares of our Series C Preferred Stock. The affirmative vote of the holders of 86% of the issued and outstanding shares of our Series A Preferred Stock is required for the Board: (i) to declare dividends upon shares of our Common Stock unless, with respect to cash dividends, the shares of our Series A Preferred Stock are to receive the same dividend as the common shares, on an as converted basis; (ii) to redeem the shares of our Series A Preferred Stock at a redemption price of $0.001 per share; (iii) to authorize or issue additional or other capital stock that is junior or equal in rank to shares of our Series A Preferred Stock with respect to the preferences as to distributions and payments upon the liquidation, dissolution, or winding up of the Company; and (iv) to amend, alter, change, or repeal any of the powers, designations, preferences, and rights of our Series A Preferred Stock. Upon the dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, the holders of the Series A Preferred Stock are entitled to receive out of the assets of the Company the sum of $0.001 per share before any payment or distribution shall be made on our shares of Common Stock, or any other class of capital stock ranking junior to the Series A Preferred Stock. For a period of 10 years from the date of issuance, the holders of the Series A Preferred Stock may elect to convert each share of the Series A Preferred Stock into one share of the Company’s Common Stock. Each share of our Series A Preferred Stock is entitled to one vote when voting as a class or together with the shares of our Common Stock.

 

During the fiscal year ended March 31, 2021, stockholders converted an aggregate of 21,750,000 shares of the Company’s Series A Preferred Stock into an equal number of shares of the Company’s Common Stock. There were no similar conversions in the fiscal year ended March 31, 2022.

 

As disclosed in the notes to our consolidated financial statements for the fiscal year ended April 30, 2020, in the fiscal year 2019, the Company filed suit against Research & Referral BZ and two other parties concerning breach of contract, fraud, and statutory fraud in a stock transaction, violations of state securities laws and alter ego relating to a stock exchange/transfer transaction, involving the Company’s stock. In April 2020, the court issued a Final Default Judgment in favor of the Company finding Research and Referral, BZ liable for the Company’s claims of fraud in the inducement and statutory fraud in a stock transaction. Further, the court ordered that the stock transaction be rescinded, and the Company’s stock be returned to the Company, and the matter has been dismissed with prejudice. During the fiscal year ended March 31, 2022, the Company’s transfer agent received and cancelled the stock certificate and the Company retired 2,000,000 shares of the Company’s Series A Preferred Stock previously purportedly held by Research and Referral BZ.

 

As of March 31, 2022, and 2021, 3,100,000 shares and 5,100,000 shares, respectively, of the Company’s Series A Preferred Stock remain outstanding. The shares of the Company’s Series A Preferred Stock reported in the Company’s financial statements as of March 31, 2022, include 2,900,00 shares purportedly held by Research & Referral BZ, pending cancellation of the stock certificate when presented by Research & Referral BZ in the future.

 

Series B Convertible Preferred Stock

 

The Board has authorized the issuance of up to 10,000,000 shares of Series B Convertible Preferred Stock (the Series B Preferred Stock”). Issued and outstanding shares of our Series B Preferred Stock, if any, are senior in rank to shares of our Series A and Series C Preferred Stock. During the fiscal year ended March 31, 2021, all shares of the Company’s Series B Preferred Stock previously issued were converted into shares of the Company’s Class A Common Stock. As of March 31, 2022, and 2021, no shares of the Company’s Series B Preferred Stock remain outstanding.

 

Series C Convertible Preferred Stock

 

The Board has authorized the issuance of up to 10,000,000 shares of Series C Convertible Preferred Stock (the Series C Preferred Stock”). Shares of our Series C Preferred Stock are junior in rank to the Series A and Series B Preferred Stock. The affirmative vote of the holders of 86% of the issued and outstanding shares of our Series C Preferred Stock is required for the Board: (i) to declare dividends upon shares of our Common Stock unless, with respect to cash dividends, the shares of our Series C Preferred Stock are to receive the same dividend as the common shares, on an as converted basis; (ii) to redeem the shares of Series C Preferred Stock at a redemption price of $0.001 per share; (iii) to authorize or issue additional or other capital stock that is junior or equal in rank to our Series C Preferred Stock with respect to the preferences as to distributions and payments upon the liquidation, dissolution, or winding up of the Company; and (iv) to amend, alter, change, or repeal any of the powers, designations, preferences, and rights of the Series C Preferred Stock. Upon the dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, the holders of the Series C Preferred Stock are entitled to receive out of the assets of the Company the sum of $0.001 per share before any payment or distribution shall be made on our shares of Common Stock, or any other class of capital stock of the Company ranking junior to the Series C Preferred Stock. For a period of 10 years from the date of issuance, the holders of the Series C Preferred Stock may elect to convert each share of Series C Preferred Stock into one share of the Company’s Common Stock. Each share of our Series C Preferred Stock is entitled to one vote when voting as a class or together with shares of our Common Stock.

 

During the fiscal year ended March 31, 2022, and 2021, holders of 10,000 shares and 260,000 shares, respectively, of the Company’s Series C Preferred Stock converted their holdings into an equal number of shares of the Company’s Common Stock. As of March 31, 2022, and 2021, 3,220,000 shares and 3,230,000 shares of the Company’s Series C Preferred Stock remain outstanding.

 

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Common Stock

 

The Board has authorized the issuance of up to 800,000,000 shares of Class A Common Stock and up to 10,000,000 shares of Class B Common Stock, each with a par value of $0.0001 per share. Holders of our Common Stock are entitled to dividends, subject to the rights of the holders of other classes of capital stock outstanding having priority rights with respect to dividends. At the time of this Annual Report, no shares of the Company’s Class B Common Stock remain outstanding. References to our “Common Stock” throughout this report include our Class A Common Stock and Class B Common Stock, unless otherwise indicated or the context otherwise requires.

 

In July 2020, in exchange for $3.0 million in cash, the Company issued 30.0 million shares of its Class A Common Stock and a fully vested Stock Warrant to purchase up to 10.0 million shares of the Company’s Class A Common Stock, at the exercise price of $0.20 per share, in connection with the previously disclosed SPA Agreement between the Company and DSSI (see Note 15 above). On the effective date of the SPA Agreement, the closing price for the Company’s common stock was $0.18 per share and the Company recognized a deemed dividend of $2.4 million in connection with this related-party transaction.

 

In April 2021, the Company issued 27.0 million shares of its Class A Common Stock to DSSI, including 15.0 million shares in payment of a loan origination fee and 12.0 million shares in prepayment of interest on a loan, as more fully discussed in Notes 11 and 14 above. On the effective date of the loan agreement, the closing price for the Company’s common stock was $0.24 per share and the Company recognized a deemed dividend of $1.1 million in connection with this related-party transaction.

 

In December 2021, the Company and DSSI entered into a Stock Purchase and Share Subscription Agreement pursuant to which DSSI invested $3.0 million in the Company in exchange for 50.0 million shares of Class A Common Stock and a Stock Warrant to purchase up to 50.0 million shares of the Company’s Class A Common Stock. On the effective date of the Stock Purchase and Share Subscription Agreement, the closing price for the Company’s common stock was $0.075 per share and the Company recognized a deemed dividend of $2.3 million in connection with this related-party transaction.

 

As discussed in Note 13 above, in January 2022, the Company and DSS entered into a one-year Business Consulting Agreement (the “Consulting Agreement”) pursuant to which the DSS will provide to the Company certain consulting services, as defined in the Consulting Agreement. In connection with the Consulting Agreement, the Company agreed to pay DSS and flat monthly fee of sixty thousand dollars ($60,000) and DSS received a fully vested detachable Stock Warrant to purchase up to 50.0 million shares of the Company’s Class A Common Stock, at the exercise price of $0.0001 per share. On the effective date of the Consulting Agreement, the fair value of the detachable Stock Warrant was $3.5 million which is being recognized as consulting expense over the term of the Consulting Agreement (one year). In February 2022, Sharing Services issued 50.0 million shares of its Common Stock Class A to DSS in connection with the exercise of such Stock Warrant.

 

During the fiscal year ended March 31, 2021, the Company also issued: (a) 10.0 million shares of its Class A Common Stock to Robert Oblon, a co-founder of the Company, pursuant to the previously disclosed Multi-Party Settlement Agreement, (b) 5.5 million shares in connection with the exercise of warrants by Company employees, and (c) 2.3 million shares in connection with the exercise of warrants by independent distributors of the Company.

 

During the fiscal year ended March 31, 2022, holders of 10,000 shares of the Company’s Series C Preferred Stock converted such holdings into an equal number of shares of the Company’s Class A Common Stock. In addition, during the fiscal year ended March 31, 2022, the Company issued: (a) 1.5 million shares in connection with the exercise of warrants by Company employees, and (b) 313.200 shares in connection with the exercise of warrants by independent distributors of the Company.

 

During the fiscal year ended March 31, 2021, the holders of 10.0 million shares of the Company’s Series B Preferred Stock and 10.0 million shares of the Company’s Class B Common Stock converted their holdings into an equal number of shares of the Company’s Class A Common Stock. In addition, during the fiscal year ended March 31, 2021, a purported holder of 20.0 million shares of the Company’s Series A Preferred Stock, converted such holdings into an equal number of shares of the Company’s Class A Common Stock, holders of 1.8 million shares of the Company’s Series A Preferred Stock converted such holdings into an equal number of shares of the Company’s Class A Common Stock, and holders of 260,000 shares of the Company’s Series C Preferred Stock converted such holdings into an equal number of shares of the Company’s Class A Common Stock.

 

As of March 31, 2022, and 2021, 288,923,969 shares and 160,100,769 shares, respectively, of our Class A Common Stock remained issued and outstanding. As of March 31, 2022, and 2021, there were no shares of the Company’s Class B Common Stock outstanding.

 

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NOTE 17 – STOCK-BASED COMPENSATION

 

A subsidiary of the Company has awarded compensatory warrants to purchase shares of the Company’s common stock to its officers and employees (see Note 2 – “SIGNIFICANT ACCOUNTING POLICIES - Share-Based Payments” for more details) and warrants to purchase shares of the Company’s common stock to its independent sales force. Further, the Company from time to time, awards stock warrants to its consultants in exchange for services.

 

Stock Warrants

 

Stock Warrants Issued to Related Parties, Directors, Officers, and Employees

 

In the fiscal year ended March 31, 2021, the Company issued to Company directors, officers, and employees stock warrants to purchase, in the aggregate, up to 29,200,000 shares of its Common Stock, with an aggregate grant date fair value of $3.6 million. Some of the stock warrants outstanding as of March 31, 2022, are exercisable at a variable exercise price (see Note 2 – “SIGNIFICANT ACCOUNTING POLICIES - Share-Based Payments” for more details) pursuant to the related employment agreements.

 

As discussed in Note 14, in July 2020, the Company and Heng Fai Ambrose Chan, a Director of the Company, entered into a Stock Purchase and Share Subscription Agreement (the “SPA Agreement”) pursuant to which Mr. Chan agreed to invest $3.0 million in the Company in exchange for 30.0 million shares of the Company’s Class A Common Stock and a fully vested Stock Warrant to purchase up to 10.0 million shares of the Company’s Class A Common Stock at an exercise price of $0.20 per share. In July 2020, Mr. Chan assigned to DSS all interests in the SPA Agreement and the transactions contemplated in the SPA Agreement were completed. Mr. Chan is a Director of DSS.

 

In October 2017, the Company issued a convertible note in the principal amount of $50,000 to HWH International, Inc (“HWH”) and a detachable stock warrant to purchase up to 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. The Note is convertible into 333,333 shares of the Company’s Common Stock and expires in October 2022. HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Company.

 

The following table summarizes the activity relating to the Company’s stock warrants held by Related Parties (all of which are fully vested) (See Note 15 above for more details):

 

   Number of
Warrants
   Weighted Average Exercise Price   Weighted Average Remaining Term 
Outstanding at April 30, 2020   333,333   $0.15    2.4 
Granted   10,000,000         - 
Exercised        -    - 
Expired or forfeited   -         - 
Outstanding at March 31, 2021   10,333,333   $0.20    2.3 
Granted   250,000,000    0.14    - 
Exercised   (50,000,000)   0.0001      
Expired or forfeited   -    -    - 
Outstanding at March 31, 2022   210,333,333   $0.18    4.1 

 

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The following table summarizes the activity relating to the Company’s vested and unvested stock warrants held by Directors, Officers, and Employees:

 

   Number of
Warrants
   Weighted Average Exercise Price   Weighted Average Remaining Term 
Outstanding at April 30, 2020   22,000,000   $0.002    4.2 
Granted   29,200,000    0.13    - 
Exercised   (9,000,000)   0.0001    - 
Expired or forfeited   (18,125,000)   0.0001    - 
Outstanding at March 31, 2021   24,075,000   $0.11    3.5 
Granted   -    -    - 
Exercised   (1,500,000)   0.13    - 
Expired or forfeited   (2,875,000)   0.19    - 
Outstanding at March 31, 2022   19,700,000   $0.03    2.6 
Less: unvested at March 31, 2022   5,625,000   $0.02    2.1 
Vested at March 31, 2022   14,075,000   $0.04    2.8 

 

Stock Warrants Issued to Our Independent Sales Force

 

In the fiscal year ended March 31, 2021, the Company issued fully vested warrants to purchase up to 4,013,000 shares of its Common Stock to members of its independent sales force, with a fair value of $1.5 million. The warrants are exercisable for a period ranging from one to two years from the issuance date, at the exercise price ranging from $0.01 per share to $0.25 per share. In the fiscal year ended March 31,2022, and 2021, warrants held by independent distributors to purchase up to 1,507,200 shares and 2,066,600 shares, respectively, of the Company’s Common Stock expired or were otherwise terminated or forfeited. See Note 2 – “SIGNIFICANT ACCOUNTING POLICIES - Sales Commissions” for more details.

 

The following table summarizes the activity relating to the Company’s stock warrants held by members of the Company’s independent sales force (all of which are fully vested):

 

   Number of
Warrants
   Weighted Average Exercise Price   Weighted Average Remaining Term 
Outstanding at April 30, 2020   4,390,600   $0.04    2.5 
Granted   4,013,000    0.01    - 
Exercised   (2,339,000)   0.01    - 
Expired or forfeited   (2,066,600)   0.25    - 
Outstanding at March 31, 2021   3,998,000   $0.09    1.4 
Granted   2,400    0.01    - 
Exercised   (313,200)   0.01    - 
Expired or forfeited   (1,507,200)   0.03    - 
Outstanding at March 31, 2022   2,180,000   $0.02    1.2 

 

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Stock Warrants Held by Our Consultants

 

From time to time, the Company has granted fully vested warrants to purchase shares of its Common Stock to its consultants in exchange for services. The following table summarizes the activity relating to the Company’s stock warrants held by Company consultants (all of which are fully vested):

 

   Number of
Warrants
   Weighted Average Exercise Price   Weighted Average Remaining Term 
Outstanding at April 30, 2020   160,000   $1.97    3.80 
Granted   -    -    - 
Exercised   -    -    - 
Expired or forfeited   (60,000)   0.25    - 
Outstanding at March 31, 2021   100,000   $3.00    1.00 
Granted   -    -    - 
Exercised, expired or forfeited   -    -    - 
Outstanding at March 31, 2022   100,000   $3.00    0.02 

 

The following table summarizes additional information relating to all stock warrants outstanding and warrants exercisable as of March 31, 2022:

 

All Warrants Outstanding   All Warrants Exercisable 
    Weighted
Average Remaining
   Weighted
Average
       Weighted
Average
 
Number of
Shares
   Contractual
life (in years)
   Exercise
Price
   Number of
Shares
   Exercise
Price
 
 3,000,000    5.40   $0.0001    3,000,000   $0.0001 
 16,700,000    2.10   $0.04    11,075,000   $0.04 
 210,000,000    4.1   $0.18    210,000,000   $0.18 
 2,180,000    1.20   $0.02    2,180,000   $0.02 
 333,333    0.50   $0.15    333,333   $0.15 
 100,000    0.02   $3.00    100,000   $3.00 
 232,313,333              226,688,333      

 

NOTE 18 - COMMITMENTS AND CONTINGENCIES

 

Contingencies

 

Legal Proceedings – Related-Party Matters and Settlement Liability

 

In February 2020, the Company, Alchemist, and a former officer of the Company entered into a Settlement Accommodation Agreement and an Amended and Restated Founder Consulting Agreement pursuant to which the Company and the former officer agreed to settle all existing disputes between them, the former officer agreed to continue to provide certain consulting services to the Company, and the Company agreed to pay certain amounts to the former officer. The Company has recognized a settlement liability of $2.0 million in connection therewith. As of March 31, 2022, the settlement liability balance is $715,596. See Note 15 – “RELATED PARTY TRANSACTIONS – Alchemist Holdings, LLC” above for more information.

 

Legal Proceedings – Other Matters

 

The Company from time to time is involved in various claims and lawsuits incidental to the conduct of its business in the ordinary course. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, results of operations or cash flows.

 

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(a)

Case No. 4:20-cv-00946; Dennis Burback, Ken Eddy and Mark Andersen v. Robert Oblon, Jordan Brock, Jeff Bollinger, Four Oceans Global, LLC, Four Oceans Holdings, Inc., Alchemist Holdings, LLC, Elepreneurs U.S., LLC, Elevacity U.S., LLC, Sharing Services Global Corporation, Custom Travel Holdings, Inc., and Does 1-5, pending in the United States District Court for the Eastern District of Texas. On December 11, 2020, three investors in Four Oceans Global, LLC filed a lawsuit against the Company, its affiliated entities, and other persons and entities related to an investment made by the three investors in 2015. The Company and its affiliated entities have filed an answer denying the three investors’ claims. Plaintiffs filed a first amended complaint on October 14, 2021. This matter remains pending as of March 31, 2022.

   
(b)

AAA Ref. No. 01-20-0019-3907; Sharing Services Global Corporation, Elevacity Holdings, LLC, Elevacity U.S., LLC, Elepreneurs Holdings, LLC and Elepreneurs U.S., LLC v. Robert Oblon, pending before the American Arbitration Association. On December 30, 2020, the Company and its affiliated companies filed an arbitration complaint against Robert Oblon for breach of contract and a declaratory judgment relating to the Multi-Party Settlement Agreement with Robert Oblon. See Note 20, SUBSEQUENT EVENTS below.

   
(c)

Case No. 4:20-cv-00989; Sharing Services Global Corporation, Elevacity Holdings, LLC, Elevacity U.S., LLC, Elepreneurs Holdings, LLC and Elepreneurs U.S., LLC v. Robert Oblon, pending in the in the United States District Court for the Eastern District of Texas. On December 30, 2020, the Company and its affiliated companies filed a lawsuit against Robert Oblon seeking injunctive relief relating to the Multi-Party Settlement Agreement with Robert Oblon. This matter is a companion case to the AAA arbitration proceeding described in paragraph (b) above and, while it remains pending as of March 31,2022, further action in this case has been stayed by court order, pending final adjudication of the referenced AAA arbitration proceeding. See Note 20, SUBSEQUENT EVENTS below.

   
(d)

Case No. 4:21-cv-00026; Elepreneurs Holdings, LLC d/b/a Elepreneur, LLC, Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC, and SHRG IP Holdings, LLC v. Lori Ann Benson, Andrea Althaus and Lindsey Buboltz, pending in the United States District Court for the Eastern District of Texas. On December 31, 2020, the Company filed suit against three former distributors and obtained injunctive relief from the 429th Judicial District of Collin County, Texas. The lawsuit was removed by the three former distributors to federal court. The Company subsequently obtained injunctive relief from the federal court. The matter remains pending as of March 31, 2022.

   
(e)

Case No. 4:21-cv-00183; Sharing Services Global Corporation f/k/a Sharing Services, Inc., Elepreneurs Holdings, LLC n/k/a Elevacity Holdings, LLC, Elepreneurs U.S., LLC n/k/a Elevacity U.S., LLC and SHRG IP Holdings, LLC v. AmplifeiIntl, LLC d/b/a HAPInss and HAPInssBrands, LLC pending in the United States District Court for the Eastern District of Texas. On March 5, 2021, the Company and its affiliated entities filed suit against a newly formed competitor for various claims including trademark infringement, trade secret violations, unfair competition under state and federal law as well as tortious interference with contracts and business relationships. See Note 20, SUBSEQUENT EVENTS below.

   
(f) Cause No. 429-01137-2022; Elevacity U.S., LLC d/b/a The Happy Co. and Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC v. Mark Willodson, Judy Willodson and Valentus, Inc., pending in the 429th Judicial District Court of Collin County, Texas. On March 9, 2022, the Company filed suit against a competitor and former distributors. The matter remains pending as of March 31, 2022.
   
(g) Case No. 4:22-cv-00042; Elevacity U.S., LLC d/b/a The Happy Co. and Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC v. Brian Christopher Schweda, Jr., pending in the United States District Court for the Eastern District of Texas. On January 20, 2022, the Company filed suit against a former distributor. The matter remains pending as of March 31, 2022.
   
(h) Case No. 4:22-cv-00047; Elevacity U.S., LLC d/b/a The Happy Co. and Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC v. Kimberley McLean, pending in the United States District Court for the Eastern District of Texas. On January 20, 2022, the Company filed suit against a former distributor. The matter remains pending as of March 31, 2022.

 

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NOTE 19 - BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

 

Business Segments

 

As of March 31, 2022, and 2021, the Company, through its subsidiaries, markets and sells its products and services to consumers, through its independent sales force and proprietary websites, and to its independent distributors. The Company has determined its reportable segments are: (a) the sale of health and wellness products, and (b) the sale of other products and services. The Company’s determination of its reportable segments is based on how its chief operating decision maker manages the business.

 

The Company’s segment information is as follows:

 

   2022   2021 
   Fiscal Year Ended March 31, 
   2022   2021 
Net sales          
Health and wellness products  $32,147,330   $64,046,966 
Other   2,276,984    764,185 
Total net sales  $34,424,314   $64,811,151 
Operating earnings (loss):          
Segment gross profit:          
Health and wellness products  $22,059,788   $45,997,828 
Other   1,562,655    548,829 
Total segment gross profit   23,622,443    46,546,657 
Selling and marketing expenses   17,239,655    29,740,974 
General and administrative expenses   19,714,963    18,983,209 
Consolidated operating loss  $(13,332,175)  $(2,177,526)
Total Assets:          
Health and wellness  $13,729,219   $22,772,217 
Corporate   29,435,505    464,739 
Consolidated total assets  $43,164,724   $23,236,956 
Payments for property and equipment:          
Health and wellness  $208,952   $907,891 
Corporate   9,123,016    6,445 
Consolidated payments for property and equipment  $9,331,967   $914,336 
Depreciation and amortization expense:          
Health and wellness  $94,459   $155,085 
Corporate   560,808    8,163 
Consolidated depreciation and amortization  $655,267   $163,248 

 

Geographic Area Information

 

Our consolidated net sales, by geographic area, were as follows:

 

  2022   2021 
   Fiscal Year Ended March 31, 
Country  2022   2021 
United States  $29,803,258   $60,961,369 
Canada   2,446,330    3,214,633 
Republic of Korea   1,706,367    - 
Other   468,359    635,149 
   $34,424,314   $64,811,151 

 

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Our consolidated total assets, by geographic area, were as follows:

 

  2022   2021 
   Fiscal Year Ended March 31, 
Country  2022   2021 
United States  $39.865.782   $20,941,018 
Republic of Korea   2,663,149    1,200,214 
Other   635,793    1,095,725 
   $43,164,724   $23,236,956 

 

NOTE 20 - SUBSEQUENT EVENTS

 

Legal Proceedings - In April 2022, the parties to the matters discussed in Items (b), (c) and (e) in Note 17 – COMMITMENTS AND CONTINGENCIES – Legal Proceedings – Other Matters above reached a settlement, and the related legal and arbitration proceedings were dismissed.

 

Federal Income Tax Refund - In April 2022, the Company received a federal income tax refund in the amount of $300,000.

 

Modification of Debt - On June 15, 2022, the Company and DSSI which, together with DSS, is a majority shareholder of the Company, entered into an agreement pursuant to which the Company issued, to DSSI: (a) a two-year Convertible, Advancing 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 at the exercise price of $0.033 per share. 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 may be converted into up to 818,181,819 shares of the Company’s Class A Common Stock, at the option of the holder. Under the terms of the agreement, the Company agreed to pay to DSSI a loan origination fee of $270,000. In addition, DSSI agreed to surrender 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.

 

Financing of Lindon, Utah Facility – On June 15, 2022, Linden Real Estate Holdings, LLC, a wholly owned subsidiary of the Company, American Pacific Bancorp, Inc. (“APB”), and the Company entered a Loan Agreement pursuant to which APB loaned to the Company approximately $5.7 million. The loan bears interest at the annual rate of 8%, matures on June 1, 2024, and 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 June 17, 2022. APB is a subsidiary of Alset eHome International Inc (NASDAQ:AEI). Heng Fai Ambrose Chan, and Frank D. Heuszel, each a Director of the Company, also serve on the Board of Directors of APB, and Mr. Chan also serves on the Board of Directors of Alset eHome International.

 

Settlement With Former Officer - As disclosed in Note 14 above, in February 2020, the Company and a former officer of the Company entered into an Amended and Restated Founder Consulting Agreement (the “Co-Founder’s Agreement”) pursuant to which the former officer agreed to continue to provide certain consulting services to the Company, and the Company agreed to pay certain periodic amounts to the former officer. At that time, the Company recognized a settlement liability of $2.0 million in connection therewith. As of March 31, 2022, the settlement liability balance was $715,596. In May 2022, the Company and certain of its subsidiaries, on the one hand, and the former officer and certain entities affiliated with the former officer, on the other hand, entered into a Confidential Settlement Agreement with Mutual Releases (the “May 2022 Settlement Agreement”) pursuant to which the parties amicably settled all claims and disputes among them; (b) the former officer sold to the Company 26,091,136 shares of the Company’s common stock then under the voting and dispositive control of the former officer; (c) the Company made a one-time payment of $1,043,645.40; and (d) the Company and its relevant subsidiaries, on the one hand, and the former officer and relevant entities affiliated with the former officer, on the other hand, exchanged customary mutual releases of any prior obligations among them. On May 19, 2022, the closing price for the Company’s common stock was $0.25 per share. In the fiscal quarter ending June 30, 2022, the Company measured and recognized the repurchase of its common stock at its fair value of $652,278.40, derecognized its remaining liability under the Co-Founder’s Agreement, and recognized a recovery of $324,228 in connection with the previously recognized loss related to the Co-Founder’s Agreement.

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Reorganization of Korean Operations - In May 2022, the Company implemented its plan to reorganize its Korean operations. The reorganization resulted in a significant reduction in the size of the space subleased from HWH World (see Note 15 – “RELATED PARTY TRANSACTIONS” above) and a reduction (by ten) in the number of staff employed in our Korean operations. The reorganization did not result in material costs and expenses.

 

Funding Agreement With MojiLife - In May 2022, the Company and MojiLife entered into a Funding Agreement (the “Funding Agreement”) pursuant to which the Company agreed to provide to MojiLife loans up to a maximum outstanding at any point in time of $150,000, under a revolving line of credit. Borrowings under the revolving line of credit bear interest at the annual rate of 8% and cash advance granted are due and payable 180 days after each advance. Upon completion of the Funding Agreement, the Company advanced $40,000 to MojiLife.

 

NOTE 21 – SUPPLEMENTARY FINANCIAL INFORMATION

 

We are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act, and, accordingly, are not required to provide the supplementary financial information otherwise required by Item 302, as amended.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the fiscal period covered by this Annual Report, and concluded that, as of March 31, 2022, the Company’s disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management and its Board of Directors, as appropriate to allow timely decisions regarding required disclosure.

 

Limitations on the Company’s Controls and Procedures. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.

 

Management’s Annual Report on Internal Control over Financial Reporting.

 

Management of the Company, including the CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our management, with the participation of our CEO and our CFO, assessed the effectiveness of our internal control over financial reporting as of March 31, 2022, and concluded that our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

 

All internal control systems, no matter how well designed, have inherent limitations. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Changes in Internal Control over Financial Reporting. During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

Not Applicable.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Except as stated below, the information required by Item 10 of this Annual Report is incorporated herein by reference from our Proxy Statement related to the 2022 Annual Meeting of Stockholders under the headings “PROPOSAL 1 – ELECTION OF DIRECTORS,” “DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.”

 

Directors and Executive Officers

 

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, Inc. (formerly Document Security Systems, Inc.)(“DSS”). Mr. Chan also serves as Executive Chairman of the Company’s Board of Directors of the Company. Mr. Thatch also serves as President, CEO and Vice Chairman of the Company’s Board of Directors of the Company. DSS, together with its subsidiary, Decentralized Sharing Systems, Inc., is a majority shareholder of the Company.

 

Code of Business Conduct and Ethics

 

The Company’s Board of Directors has adopted a Code of Business Conduct and Ethics that applies to the Company’s directors, officers and employees. Copies of this document are available in print to any person, free of charge, upon written request to our Investor Relations Department at 1700 Coit Road, Suite 290, Plano, Texas 75075.

 

Involvement in Legal Proceedings

 

No Executive Officer or Director of the registrant has been convicted in a criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding that is currently pending. In addition, no Executive Officer of the registrant is the subject of any other type of legal proceedings pending.

 

As of the date hereof, no Executive Officer or Director of the registrant is involved in any bankruptcy petition by or against any business in which they are a general partner, an executive officer or a director at this time or within two years of any involvement as a general partner, executive officer, or director of any business.

 

ITEM 11. EXECUTIVE COMPENSATION

 

We are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act and, accordingly, have omitted certain information required by Item 11 of this Annual Report as permitted by applicable scaled disclosure rules.

 

The additional information required by Item 11 of this Annual Report is incorporated herein by reference from our Proxy Statement related to the 2022 Annual Meeting of Stockholders under the headings “EXECUTIVE COMPENSATION – DIRECTOR AND OFFICER COMPENSATION,” “SUMMARY COMPENSATION TABLE,” “DIRECTOR COMPENSATION” and “OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END.”

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Except as stated below, the information required by Item 12 of this Annual Report, including information about securities granted under individual compensation arrangements with executives of the registrant, is incorporated herein by reference from our Proxy Statement related to the 2022 Annual Meeting of Stockholders under the headings “EXECUTIVE COMPENSATION” and “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.”

 

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Equity Compensation Plans

 

In the fiscal year ended March 31, 2022, the Company did not issue securities to its directors, officers, employees, independent sales distributors and consultants.

 

In the fiscal years ended March 31, 2021, and April 30, 2020, the Board authorized the issuance of fully vested stock warrants to purchase an aggregate of up to 29,200,000 shares and 32,000,000 shares, respectively, of the Company’s Common Stock to its employees, including 24,700,000 shares and 32,000,000 shares, respectively, exercisable at a price linked to the price of a share of the Company’s stock multiplied by a discount rate. As of March 31, 2022, stock warrants to purchase up to 19,700,000 shares under these authorizations remain outstanding. In the fiscal year ended April 30, 2020, the Board has also authorized the issuance of fully vested stock warrants to purchase an aggregate of up to 160,000 shares of the Company’s Common Stock to two consultants, at an average exercise price of $3.00 per share, of which warrants to purchase up to 100,000 shares remain outstanding.

 

In addition, in the fiscal years 2018 and 2019, the Company issued fully vested stock warrants in connection with certain stock subscription agreements. These warrants convey the right to purchase up to 2,180,000 shares of the Company’s Common Stock, at an exercise price determined by the average trading price per share of the Company’s Common Stock and expire in 2023.

 

Further, in April 2021, the Company issued to DSS, Inc. and its subsidiaries (collectively, “DSS”) fully vested stock warrants to purchase an aggregate of up to 210,000,000 shares fully vested stock warrants to purchase an aggregate of up to 210,000,000 shares of the Company’s Common Stock at a weighted exercise price of $0.18 per share and, in October 2017, the Company issued to HWH International, Inc. (“HWH”) fully vested stock warrants to purchase up to 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Both HWH and DSS are affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Company. The President, CEO and Vice Chairman of the Board of Directors of the Company, as well as two additional Directors of the Company, including Mr. Chan, also serve on the Board of Directors of DSS. DSS, together with its subsidiary, Decentralized Sharing Systems, Inc., is a majority shareholder of the Company.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

We are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act and, accordingly, have omitted certain information required by Item 13 of this Annual Report as permitted by applicable scaled disclosure rules.

 

The additional information required by Item 13 of this Annual Report is incorporated herein by reference from our Proxy Statement related to the 2022 Annual Meeting of Stockholders under the heading “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.”

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The information required by Item 14 of this Annual Report is incorporated herein by reference from our Proxy Statement related to the 2022 Annual Meeting of Stockholders under the heading “PROPOSAL 4 – RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENT AUDITORS.”

 

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PART IV

 

ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

 

Documents filed as part of this Annual Report:

 

(a) List of Financial Statements and Financial Statement Schedules required by Item 8 of this Annual Report: See Consolidated Financial Statements beginning on Page 28 of this Annual Report. Certain financial statement schedules have been omitted because the required information does not apply or is contained in the registrant’s Consolidated Financial Statements, including the notes thereto.

 

(b) Exhibits

 

The following exhibits are filed as part of this Annual Report or are incorporated herein by reference:

 

3.1   Second Amended and Restated Articles of Incorporation of Sharing Services Global Corporation, which is incorporated herein by reference from Exhibit A to the Company’s Proxy Statement on Schedule 14A filed on July 14, 2021
     
3.2   Bylaws of Sharing Services Global Corporation, which is incorporated herein by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 24, 2019
     
4.1   Certificate of Designation of Series A Preferred Stock, which is incorporated herein by reference from Exhibit 3.1.2 to the Company’s Current Report on Form 8-K filed on May 8, 2017
     
4.2   Certificate of Designation of Series C Preferred Stock, which is incorporated herein by reference from Exhibit 3.1.4 to the Company’s Current Report on Form 8-K filed on May 8, 2017
     
4.3   Convertible Promissory Note dated April 13, 2018 issued by Sharing Service, Inc. in favor of RB Capital Partners, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on April 19, 2018
     
4.4   Convertible Promissory Note dated April 5, 2021 issued by Sharing Service Global Corporation in favor of Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 1.2 to the Company’s Current Report on Form 8-K filed on April 9, 2021
     
4.5   Warrant to Purchase Shares of Sharing Services Global Corporation’s Class A Common Stock, which is incorporated herein by reference from Exhibit 1.3 to the Company’s Current Report on Form 8-K filed on April 9, 2021
     
4.6   Warrant to Purchase Shares of Sharing Services Global Corporation’s Class A Common Stock, which is incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 29, 2021
     
4.7   Warrant to Purchase Shares of Sharing Services Global Corporation’s Class A Common Stock, which is incorporated herein by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 27, 2022
     
4.8   Form of Convertible Promissory Note issued, in June 2022, by Sharing Service Global Corporation in favor of Decentralized Sharing Systems, Inc. *
     
4.9   Form of Warrant to Purchase Shares of Sharing Services Global Corporation’s Class A Common Stock issued, in June 2022, by Sharing Service Global Corporation to Decentralized Sharing Systems, Inc. *
     
10.1   U. S. Small Business Administration Note dated May 13, 2020 issued by Sharing Services Global Corporation in favor of Prosperity Bank, which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on May 18, 2020
     
10.2   Stock Purchase and Share Subscription Agreement dated as of July 22, 2020 by and between Sharing Services Global Corporation and Heng Fai Ambrose Chan, which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on July 24, 2020
     
10.3   Settlement Accommodation Agreement [Including Stock Disposition and Release Provisions] dated July 22, 2020 by and between Sharing Services Global Corporation, Bear Bull Market Dividends, Inc., Kenyatto Montez Jones, and MLM Mafia, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on July 30, 2020
     
10.4   Securities Purchase Agreement dated as of April 5, 2021 by and among Sharing Service Global Corporation and Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on April 9, 2021

 

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10.5   Stock Purchase and Share Subscription Agreement dated as of December 23, 2021 by and among Sharing Service Global Corporation and Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 29, 2021
     
10.6   Business Consulting Agreement dated January 24, 2022 by and between Sharing Service Global Corporation and DSS, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on January 27, 2022
     
10.7   Form of Distributor Agreement of The Happy Co., which is incorporated herein by reference from Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed on June 10, 2021
     
10.8   2021 The Happy Co. Brand Partner Compensation Plan, which is incorporated herein by reference from Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed on June 10, 2021
     
10.9   Form of Securities Purchase Agreement entered into, in June 2022, by and among Sharing Services Global Corporation, and the Decentralized Sharing Systems, Inc. *
     
10.10   Form of Security Agreement made, in June 2022, by Sharing Service Global Corporation in favor of Decentralized Sharing Systems, Inc. *
     
 10.11   Form of Loan Agreement entered into, in June 2022,by and between LINDEN REAL ESTATE HOLDINGS, LLC and AMERICAN PACIFIC BANCORP, INC. *
     
10.12   Form of DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT made, in June 2022, by LINDEN REAL ESTATE HOLDINGS, LLC in favor of Cottonwood Title Insurance Agency, Inc., for the benefit of American Pacific Bancorp, Inc. *
     
10.13   Form of Demand Promissory Note issued, in June 2022, by LINDEN REAL ESTATE HOLDINGS, LLC in favor of AMERICAN PACIFIC BANCORP, INC. *
     
21.1   List of Subsidiaries of Sharing Services Global Corporation *
     
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
     
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
     
32.1   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
     
32.2   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
     
101   The following financial information from our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, and 2021, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Cash Flows and (iv) Consolidated Statements of Stockholders’ Equity (Deficit) *

 

*Included herewith

 

(c) Financial Statement Schedules – Not applicable

 

ITEM 16. FORM 10-K SUMMARY.

 

As permitted, the Company has elected to omit the information required by Item 16 of this Annual Report.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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, on the 20th day of June 2022.

 

  SHARING SERVICES GLOBAL CORPORATION
  (Registrant)
     
  By: /s/ John Thatch
    John Thatch
    Chief Executive Officer and Vice Chairman of the Board of Directors (Principal Executive Officer)
     
  By: /s/ Anthony S. Chan
    Anthony S. Chan
    Chief Financial Officer (Principal Financial Officer)
     
  By: /s/ Everett C. Schaefer Jr.
    Everett C. Schaefer Jr.
    Principal Accounting Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
/s/ John Thatch   Chief Executive Officer and Vice Chairman of the Board of Directors (Principal Executive Officer)   June 20, 2022
John Thatch        
         
/s/ Heng Fai Ambrose Chan   Executive Chairman of the Board of Directors   June 20, 2022
Heng Fai Ambrose Chan        
         
/s/ David K. Keene   Director   June 20, 2022
David K. Keene        
         
/s/ Frank D. Heuszel   Director   June 20, 2022
Frank D. Heuszel        
         
/s/ Castel B. Hibbert   Director   June 20, 2022
Castel B. Hibbert        
         
/s/ Robert H. Trapp   Director   June 20, 2022
Robert H. Trapp        
         
/s/ Christian Zimmerman   Director   June 20, 2022
Christian Zimmerman        

 

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Exhibit 4.8

 

 

THIS SECURED ADVANCING CONVERTIBLE PROMISSORY NOTE (“NOTE”) AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), APPLICABLE STATE LAW, OR APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, AND MAY NOT BE SOLD, OFFERED FOR SALE, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE OR FOREIGN SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR (B) SUCH TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE OR FOREIGN SECURITIES LAWS COVERING SUCH TRANSACTION.

 

SECURED ADVANCING CONVERTIBLE PROMISSORY NOTE

 

Principal Amount: $27,000,000.00 June __, 2022

 

FOR VALUE RECEIVED, and upon and subject to the terms and conditions set forth herein, Sharing Services Global Corporation, a Nevada corporation (“SHRG” or the “Borrower”) promises to pay to Decentralized Sharing System, Inc., a Nevada corporation (together with its permitted successors and assigns, the “Holder” or “Lender”), or to its order, the principal sum of Twenty-seven Million Dollars ($27,000,000.00) (the “Principal Amount”), of which up to $27,000,000.00 and all accrued interest can be paid by the “Optional Conversion” (as hereinafter defined) of such amount into shares of SHRG’s $0.0001 par value Class A Common Stock (“Class A Common Stock”) at the Conversion Price, provided all of the conditions precedent contained in Section 3 of this Note have been satisfied, together with interest in arrears, if any, on the unpaid principal balance from time to time outstanding from the date hereof until the entire Principal Amount due hereunder is paid in full at the rate(s) provided below. This Note is issued in connection with a Securities Purchase Agreement relating to the Note (the “Purchase Agreement”) executed on even date herewith between the Borrower and Holder. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement. “Dollar” and “$” mean the lawful currency of the United States of America.

 

1. Maturity.

 

1.1 Maturity Date. The aggregate outstanding Principal Amount, together with all accrued interest, if any, thereon, reduced by unamortized prepaid interest, if any, (cumulatively, the “Outstanding Amount”), shall be due and payable in full ON DEMAND by the Holder, or if the demand is not sooner made, on the earliest to occur of (the earliest of such events being the “Maturity Date”): (i) June [__], 2024 (the “Scheduled Maturity Date”); (ii) the acceleration of this Note upon the occurrence of an Event of Default (as hereinafter defined) or Change of Control (as hereinafter defined); (iii) upon full conversion of this Note as provided herein; or (iv) upon full repurchase of this Note by Borrower as provided herein.

 

1.2 Redemption. The Borrower at its option shall have the right to redeem a portion or all amounts of outstanding Principal Amount without incurring penalties, additional interest, or other fees or charges; provided that Borrower shall send Holder written notice (“Redemption Notice”) of such redemption stating the amount of the Principal Amount being redeemed (“Redemption Amount”) and, if such redemption of the Note is in full, the place or places whether the Note is to be surrendered for payment. After a Redemption Notice is given, the Borrower shall deliver to the Holder the Redemption Amount within ten (10) Business Days of such Redemption Notice, during which period of time the Holder shall not have the right to convert any portion of this Note. If the Borrower fails to deliver the Redemption Amount to Holder within ten (10) Business Days, then (i) all rights and remedies of the Holder under this Note, including conversion rights in accordance with Section 3 of this Note, shall continue as though no such Redemption Notice had been given, and (ii) the Borrower shall not have the right to redeem any portion of the Principal Amount for a period of thirty (30) calendar days following such failure to deliver the Redemption Amount.

 

2. Interest.

 

2.1 Interest Rate. This Note shall bear eight percent (8%) interest per annum. Interest shall be paid quarterly, in cash or in Class A Common Stock, at the Holder’s election, subject to Sections 3 of this Note, on March 31st, June 30th, September 30th, and December 31st of each year during the term of Note. Interest shall be computed on the basis of a 360-day year and the actual number of days elapsed.

 

 

 

 

2.2 Interest After Default. At Holder’s option, and to the extent permitted by applicable law, the unpaid principal balance shall bear interest after an Event of Default and after Maturity (whether by acceleration or otherwise) at the Default Interest Rate. The “Default Interest Rate” shall be, at Holder’s option, a) eighteen percent (18%) per annum, or b) such lesser rate of interest as Holder in its sole discretion may choose to charge; but never more than the Maximum Lawful Rate or at a rate that would cause the total interest contracted for, charged or received by Holder to exceed the Maximum Lawful Amount. The term “Maximum Lawful Rate” means the maximum rate of interest and the term “Maximum Lawful Amount” means the maximum amount of interest that is permissible under applicable state or federal law for the type of loan evidenced by this Note. If applicable state or federal law does not permit a higher interest rate, the “weekly ceiling” (as defined in Chapter 303 of the Texas Finance Code) shall be the interest rate ceiling applicable to this Note and shall be the basis for determining the Maximum Lawful Rate in effect from time to time during the term of this Note. If applicable state or federal law allows a higher interest rate or federal law preempts the state law limiting the rate of interest, then the foregoing interest rate ceiling shall not be applicable to this Note. If the interest rate ceiling is increased by statute or other governmental action subsequent to the date of this Note, then the new interest rate ceiling shall be applicable to this Note from the effective date thereof, unless otherwise prohibited by applicable law. If from any circumstances the Holder should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest, and, if the Principal Amount of this Note has been paid in full, shall be refunded to the Borrower.

 

3. Conversion.

 

3.1. Optional Conversion. At any time during the term of this Note, except as otherwise provided herein, all or a part of the Principal Amount and all or part of the accrued interest, if any, thereon (the “Maximum Conversion Amount”) may, at the sole option of the Holder, be converted, in whole or in part, into fully paid and non-assessable whole shares of Class A Common Stock (“Optional Conversion”) in accordance with Section 3.4 below.

 

3.2. Mechanics of Conversion. The Holder shall notify the Borrower in writing of its election to convert all or part of the Maximum Conversion Amount (“Conversion Amount”) in accordance with Section 3.1 (“Conversion Notice”). Such conversion shall only become effective after all of the following conditions have been satisfied:

 

a. Borrower receives the Conversion Notice;

 

b. Holder executes any and all documents required in connection with becoming a holder of Class A Common Stock;

 

c. Borrower issues and delivers to Holder a certificate or certificates for the number of Class A Common Stock, if any, to which Holder shall be entitled as provided herein, within seven (7) calendar days of receipt of the Conversion Notice (“Certificates”); and

 

d. Holder provides Borrower with written confirmation that the outstanding balance of the Principal Amount and accrued interest, if any, has been reduced by the Conversion Amount (“Reduction Certificate”). Upon the occurrence of the events set forth in Sections 3.2 (a), (b) and (c) above, and this Section 3.2(d), Borrower shall deliver to the Holder a Restated Note (“Restated Note”) evidencing the remaining outstanding balance of the Principal Amount, if any, which Restated Note shall in all other respects be identical with this Note, except that the Maximum Conversion Amount shall be reduced by the Conversion Amount.

 

3.3 Conversion Price. The number of whole shares of Class A Common Stock into which this Note may be converted (the “Conversion Shares”) shall be determined by dividing the Conversion Amount by $0.033 (the “Conversion Price”).

 

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3.4 Adjustments.

 

(a) Stock Dividends, Reclassifications, Recapitalizations, Etc. In the event the Borrower: (i) pays a dividend in Class A Common Stock or makes a distribution in Class A Common Stock, (ii) subdivides its outstanding Class A Common Stock into a greater number of shares, (iii) combines its outstanding Class A Common Stock into a smaller number of shares or (iv) increases or decreases the number of shares of Class A Common Stock outstanding by reclassification of its Class A Common Stock (including a recapitalization in connection with a consolidation or merger in which the Borrower is the continuing corporation), then the Conversion Price on the record date of such division or distribution or the effective date of such action shall be adjusted by the multiplying such Conversion Price by a fraction, the numerator of which is the number of shares of Class A Common Stock outstanding immediately before such event and the denominator of which is the number of Class A Common Stock outstanding immediately after such event.

 

(b) Notice of Certain Transactions. In the event that the Borrower shall propose (i) to pay and dividend payable in securities of any class to the holders of its Class A Common Stock or to make any other non-cash dividend or distribution to the holders of its Class A Common Stock, (ii) to offer the holders of its Class A Common Stock rights to subscribe for or to purchase any securities convertible into shares of Class A Common Stock or shares of stock of any class or any other securities, rights or options, (iii) to effect any capital reorganization, reclassification, consolidation or merger affecting the class of Class A Common Stock, as a whole, or (iv) to effect the voluntary or involuntary dissolution, liquidation or winding-up of the Borrower, the Borrower shall, within the time limits specified below, send to the Holder a notice of such proposed action or offer. Such notice shall be mailed to the Holder at its address as it appears in the records of the Borrower, which shall specify the record date for the purposes of such dividend, distribution or rights, or the date such issuance or event is to take place and the date of participation therein by the holders of Class A Common Stock, if any such date is to be fixed, and shall briefly indicate the effect of such action on the Class A Common Stock and the Conversion Price. Such notice shall be given as promptly as possible and (x) in the case of any action covered by clause (i) or (ii) above, at least ten (10) days prior to the record date for determining holders of the Class A Common Stock for purposes of such action or (y) in the case of any other such action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Class A Common Stock, whichever shall be the earlier.

 

3.5 No Fractional Shares. No fractional shares of Class A Common Stock shall be issued upon conversion of this Note. In lieu of the Borrower issuing any fractional shares to the Holder upon conversion of the Note, the Borrower shall pay to the Holder cash in the amount of the fractional shares valued at the Conversion Price.

 

4. Advances.

 

Subject to the terms and conditions of, and in reliance upon the representations and warranties made in, this Note and the other Transaction Documents, Holder agrees to make a total credit facility of up to Twenty-seven million dollars ($27,000,000) (the “Borrowing Cap”) available upon the Borrower’s request therefor, as follows:

 

4.1 Borrowing and Disbursement. The Holder shall make advances to the Borrower from time to time in accordance with and subject to the terms hereof, up to a maximum principal amount at any time outstanding equal to the Borrowing Cap reduced by the amount of all prior advances at such time. If the unpaid balance of the amount loaned hereunder should exceed the Borrowing Cap or any other limitation set forth in this Note, such amount shall nevertheless constitute obligations that are secured by the Collateral (as defined in the Security Agreement) and entitled to all benefits thereof.

 

5. Security; Guaranties.

 

5.1 This Note is secured by the grant of security interest over all of the Borrower’s assets pursuant to the Security Agreement.

 

5.2 This Note is guaranteed by the Guaranties executed by the Subsidiaries in favor of the Holder.

 

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6. Covenants.

 

6.1 Negative Covenants. So long as this Note shall remain in effect and until any Outstanding Amount (and liquidated damages, if any) and all fees and all other expenses or amounts payable under this Note and the Purchase Agreement have been paid in full, unless the Holders shall otherwise consent in writing, which consent shall not be unreasonably withheld or delayed, the Borrower shall not:

 

a. Senior or Pari Passu Indebtedness. Incur, create, assume, guaranty or permit to exist any indebtedness that ranks senior in priority to, or pari passu with, the obligations under this Note, except (i) indebtedness existing on the date hereof as set forth in Schedule A attached hereto only to the extent that such indebtedness ranks senior in priority to or pari passu with the obligations under this Note and the Purchase Agreement on the issuance date, (ii) indebtedness that refinances any of the indebtedness referenced in Schedule A as long as any such refinance does not result in on increase in the amount of such indebtedness and (iii) trade payables created in the ordinary course of business up to a maximum at any one time of $1,000,000.00;

 

b. Liens. Create, incur, assume or permit to exist any lien on any property or assets, other than (i) financing of personal property used in the business, and (ii) financing of inventory, (including stock or other securities of the Borrower) now owned or hereafter acquired by the Borrower or on any income or revenues or rights in respect of any thereof, except Permitted Liens;

 

c. Dividends and Distributions. Declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities (other than shares of Class A Common Stock of the Borrower in connection with a stock dividend, stock split or other recapitalization) or a combination thereof (other than a reverse stock split of the Class A Common Stock of the Borrower), with respect to any shares of its capital stock or directly or indirectly redeem, purchase, retire or otherwise acquire for value any shares of any class of its capital stock or set aside any amount for any such purpose except as permitted under subsection (d) below;

 

d. Stock Repurchases. Repay, repurchase, redeem or offer to repay, repurchase, redeem or otherwise acquire more than a de minimis number of shares of its Class A Common Stock (or Class A Common Stock equivalents) other than as to (i) the Conversion Shares as permitted or required under this Note or Purchase Agreement and (ii) repurchases of Class A Common Stock of departing officers and directors of the Borrower. Holder specifically agrees the redemption or conversion into Class A Common Stock of preferred stock existing on the date hereof does not require Holder approval.

 

e. Certain Payments and Prepayments. Optionally prepay, repurchase or redeem or segregate funds with respect to any indebtedness with a remaining term of greater than twelve months of the Borrower at the time of the optional payment, other than for (A) indebtedness existing on the date hereof and set forth in Schedule A attached hereto, and (B) indebtedness under this Note or the Purchase Agreement;

 

f. Amendments to Constitutive Documents. Amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder; or

 

g. Other. Enter into any agreement with respect to any of the foregoing.

 

6.2 Affirmative Covenants. So long as this Note shall remain in effect and until any Outstanding Amount (and liquidated damages, if any) and all fees and all other expenses or amounts payable under this Note and the Purchase Agreement have been paid in full, unless the Holders shall otherwise consent in writing, which consent shall not be unreasonably withheld or delayed, the Borrower and each of its Subsidiaries will comply with the following affirmative covenants:

 

a. Financial and Operating Covenants and Ratio. As of the end of each fiscal quarter, the Borrower and its Subsidiaries on a consolidated basis, commencing with the fiscal quarter ending June 30, 2022, will satisfy the following financial measurement, which will be determined using United States generally accepted accounting principles (“GAAP”) consistently applied:

 

(1) Minimum Fixed Charge Coverage Ratio. The ratio of EBITDA for the most recently ended four (4) fiscal quarters to Fixed Charges for the most recently ended four (4) fiscal quarters, calculated as of the last day of the last fiscal quarter, shall not be less than 1.25:1:

 

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EBITDA” means earnings before income taxes, depreciation, and amortization.

 

Fixed Charges” means, for any period, the sum of the following (without duplication): (a) interest expenses of the Borrower and its Subsidiaries determined on a consolidated basis for such period, (b) all regularly scheduled principal payments made with respect to indebtedness of the Borrower and its Subsidiaries during such period, other than any balloon, bullet or similar principal payment which repays such Indebtedness in full, (c) all dividends paid during such period on preferred equity interests not owner by the Borrower and of its Subsidiaries and (d) payments in respect of capitalized lease obligations. The Borrower’s pro rata share of the Fixed Charges of unconsolidated affiliates of the Borrower shall be included in determinations of Fixed Charges.

 

(2) Annual Financial Statements and Compliance Certificates. Within 90 days after the end of each fiscal year of the Borrower beginning with the fiscal year ending March 31, 2023 (or December 31, 2022 in the event the Borrower changes its fiscal year end to December 31), the Borrower must prepare and deliver to the Holder a complete set of consolidated, audited financial statements for the Borrower and its Subsidiaries prepared in accordance with GAAP and otherwise in form and substance as required by and acceptable to the Holder, including without limitation, a balance sheet, an income statement, and a statement of cash flows. Such financial statements shall be prepared in accordance with GAAP consistently applied, and shall be certified without qualification by an independent certified public accounting firm satisfactory to the Holder. Together with the annual financial statements, the Borrower shall also provide to the Holder the related management letter prepared by such accountants and a certificate signed by such accountants stating that the financial statements fairly present in all material respects the consolidated financial condition of the Borrower and its Subsidiaries on a consolidated basis as of the date thereof and for the periods covered thereby.

 

(3) Quarterly Financial Statements and Compliance Certificates. Within 60 days after the end of each fiscal quarter of the Borrower beginning with the fiscal quarter ending June 30, 2022, the Borrower must prepare and deliver to the Holder a complete set of consolidated, unaudited financial statements for the Borrower and its Subsidiaries prepared in accordance with GAAP and otherwise in form and substance as required by and acceptable to the Holder, including without limitation, a balance sheet, an income statement, and a statement of cash flows. Together with the quarterly financial statements, the Holder must also receive a certificate executed by the chief financial officer or such other senior executive officer of the Borrower that is acceptable to the Holder (a) stating that the financial statements fairly present in all material respects the financial condition of the Borrower and its Subsidiaries on a consolidated basis as of the date thereof and for the periods covered thereby, and (b) certifying that as of the date of such certificate there is not any existing Event of Default.

 

(4) Quarterly Covenant Compliance. Within 60 days after the end of each fiscal quarter, together with the financial statements and certificates required under Section 6.2(a)(4), the Borrower shall provide the Holder a certificate executed by the chief financial officer or such other senior executive officer of the Borrower that is acceptable to the Holder providing a reconciled calculation demonstrating compliance with the financial and operating covenants and ratio under Section 6.2(a).

 

b. Use of Proceeds. The proceeds of this Note shall be used in part to payoff in full that certain Convertible Promissory Note dated April 5, 2021 (the “Prior Note”) and upon payoff of the Prior Note, the Prior Note automatically will be cancelled and of no further force and effect.

 

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c. Fiscal Year. The Borrower and each of its Subsidiaries will maintain a fiscal year that has a March 31st year end, but Holder agrees to allow Borrower to convert to a December 31st year end if such conversion occurs within 6 months of this Note.

 

d. Books and Records; Maintenance of Properties. The Borrower and each of its Subsidiaries will keep and maintain satisfactory and adequate books and records of account in accordance with GAAP. The Borrower and each of its Subsidiaries will also keep, maintain and preserve all of its property and assets in good order and repair (ordinary wear and tear excepted).

 

e. Existence and Good Standing. The Borrower and each of its Subsidiaries will preserve and maintain (a) its existence under the laws of its jurisdiction of organization, and (b) its good standing in all jurisdictions where it is required to be so qualified, and (c) the validity of all its material authorizations and licenses required or otherwise appropriate in the conduct of its businesses.

 

f. Insurance. The Borrower and each of its Subsidiaries will keep all of its property and assets fully covered by insurance with reputable and financially sound insurance companies (reasonably acceptable to the Holder). The Borrower and each of its Subsidiaries must also maintain such protection against such hazards and liability (including casualty, liability, fire, flood, business interruption, earthquake, workmen’s compensation, and other material risks to its property and business), in such amounts and with such deductibles as is customary in the relevant industry and appropriate under the relevant circumstances (and, in each instance, as is reasonably acceptable to the Holder).

 

g. Management Changes. The Borrower will notify the Holder in writing within thirty (30) days after any change (including any dismissal or change in title or status) in the senior management personnel (which shall be deemed to include senior vice presidents and each officer senior thereto) of the Borrower or any of its Subsidiaries.

 

h. Litigation and Administrative Proceedings. The Borrower will notify the Holder in writing immediately upon the institution or commencement of any litigation, legal or administrative proceeding, or labor controversy affecting the Borrower or any of its Subsidiaries (a) with a purported amount in controversy in excess of $50,000 or (b) that could reasonably be expected to have or cause a Material Adverse Effect. In addition, Borrower shall provide Lender upon request a summary and status update of all litigation from Borrower’s counsel.

 

i. Compliance with Laws. The Borrower and each of its Subsidiaries will comply in all material respects (a) with all material laws, rules, regulations and orders (federal, state, local and otherwise) applicable to its business, and (b) with the provisions and requirements of all material Authorizations. The Borrower will notify the Holder immediately in detail of any actual or alleged material failure to comply with or violation of any such laws, rules, regulations or orders, or under the terms of any of such Authorizations, or of the occurrence or existence of any facts or circumstances that with the passage of time, the giving of notice or otherwise could create such a failure to comply or violation or could reasonably be expected to occasion the termination of any of such Authorization.

 

j. Additional Collateral. The Borrower will execute, deliver and record (or, as appropriate, cause the execution, delivery and recordation) at any time upon the Holder’s reasonable request and in form and substance reasonably satisfactory to the Holder, any of the following instruments in favor of the Holder as additional Collateral hereunder: (a) mortgages, deeds of trust and/or assignments on or of any real or personal property owned, leased or licensed by it, and (b) certificates of title encumbrances against any of its titled vehicles, and (c) any other like assignments or agreements specifically covering any of its properties or assets (including assignments of any patents, trademarks, copyrights, databases, trade secrets and other forms of intellectual property and deposit account control agreements), and (d) any financing or continuation statements requested by the Holder, and (e) such documents as shall be necessary to effectively register the Holder’s lien in the intellectual property of the Borrower with the Office of Patent and Trademark.

 

k. Further Assurances. From time to time, the Borrower will execute and deliver (or will cause to be executed and delivered) such supplements, amendments, modifications to and/or replacements of the Loan Documents and such further instruments as may be reasonably required to effectuate the intention of the parties to (or to otherwise facilitate the performance of) the Loan Documents

 

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7. Most Favored Nation. While the Note is outstanding, if the Borrower sells or issues any convertible notes or subsequent convertible instruments (“Subsequent Convertible Instruments”) on terms that differ from the Note, the Borrower will provide the Holder with written notice of such sale or issuance, including the terms of the Subsequent Convertible Instruments, no later than five (5) days after the closing date thereof. In the event the Holder determines, in its sole discretion, that any Subsequent Convertible Instrument contains terms, individually or collectively, more favorable to the holder(s) thereof than the terms set forth in the Note, the Holder may elect to exchange the Note for such Subsequent Convertible Instrument based on the Note’s principal balance plus any accrued but unpaid interest, if any, thereunder. If the Holder elects to exchange the Note for a Subsequent Convertible Instrument, the Borrower agrees to enter into a side letter with the Holder relating to such Subsequent Convertible Instrument, which side letter will have substantially the same terms as those set forth in this Agreement.

 

8. Replacement of Note. If this Note is mutilated, lost, stolen or destroyed, the Borrower shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Note, a new Note, but only upon receipt of evidence reasonably satisfactory to the Borrower of such loss, theft or destruction and customary and reasonable bond or indemnity, if requested.

 

9. Events of Default. The following constitute an event of default (“Event of Default”):

 

a. Borrower fails to pay any amount of principal or interest under this Note when due and said failure continues for a period of ten (10) days after Borrower’s receipt of written notice from Holder;

 

b. Borrower fails or neglects to perform, keep or observe any of the covenants, conditions or agreements contained in this Note and such failure or neglect continues after Holder provided Borrower with thirty (30) days written notice thereof;

 

c. Any warranty or representation now or hereafter made by the Borrower in connection with this Note is untrue or incorrect in any material respect, or any schedule, certificate, statement, report, financial data, notice, or writing furnished at any time pursuant to this Note by the Borrower to the Holder is untrue or incorrect in any material respect, on the date as of which the facts set forth therein are stated or certified and such failure or neglect continues after Holder provided Borrower with thirty (30) days written notice thereof;

 

d. A proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed against Borrower which is not dismissed within thirty (30) days of its filing, or a proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed by Borrower or the Borrower makes an assignment for the benefit of creditors or Borrower takes any corporate action to authorize any of the foregoing;

 

e. Borrower voluntarily or involuntarily dissolves or is dissolved, terminates or is terminated;

 

f. Borrower becomes insolvent or fails generally to pay its debts as they become due, and said failure continues for a period of thirty (30) days after written notice of same from the Holder to the Borrower; or

 

g. Borrower breaches any agreements or covenants, as modified or amended, set forth in the Purchase Agreement or any representation or warranty set forth in the Purchase Agreement shall be determined to be false at the time given and such failure or neglect continues after Holder provided Borrower with thirty (30) days written notice thereof.

 

10. Remedies. Upon the occurrence of an Event of Default, or Change of Control, at the option and upon the written declaration of the Holder (or automatically without such declaration if an Event of Default set forth in Section 9(d) occurs), the entire Outstanding Amount shall, without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived, be forthwith due and payable, and Holder may, immediately and without expiration of any period of grace, enforce payment of all amounts due and owing under this Note and exercise any and all other remedies granted to it at law, in equity or otherwise, including the demand for immediate transfer to the Holder of any ownership interests in the Company held by the Borrower. For purposes of this Note, the term “Change of Control” shall mean the consummation of any bona fide third party tender offer, merger, amalgamation, consolidation or other similar transaction the result of which is that any “person” (as defined in Section 13(d)(3) of the Exchange Act), or group of persons, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of a majority of total voting power of the voting stock of the Company. Change of Control specifically excludes any transactions involving Holder and/or any entity or person affiliated with Holder including Document Security Systems, Inc. and the Document Security Systems, Inc. Board of Directors, and its major shareholders.

 

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11. Miscellaneous.

 

a. Notices. All notices to any party required or permitted hereunder shall be in writing and shall be sent to the physical address or email address set forth for such party as follows:

 

  i. If to the Holder:

 

Decentralized Sharing Services, Inc.

1400 Broadfield, Suite 100

Houston, Texas 77084

Attention: Frank D. Heuszel, President 

Frank.heuszel@dssworld.com

 

  ii. If to Borrower:

 

Sharing Services Global Corporation

1700 Coit Road, Suite 290

Plano, Texas 75075

Attention: Chief Executive Officer

JThatch@shrginc.com

 

Sharing Services Global Corporation

1700 Coit Road, Suite 290

Plano, Texas 75075

Attention: General Counsel

CMccain@shrginc.com

 

Any such notice shall be deemed effectively given (i) upon personal delivery to the party to be notified; (ii) when sent by confirmed electronic transmission or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) three business days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one day after deposit with a recognized national overnight courier, specifying next day delivery, or two days after deposit with a recognized international overnight courier, specifying two day delivery, in each case with written verification of receipt.

 

b. Waiver. No failure to exercise, and no delay in exercising, on the part of the Holder, any right, power, or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law.

 

c. Amendments. Any term, covenant, or condition of this Note may be amended or waived only by written consent of the Borrower and the Holder.

 

d. Expenses. Any reasonable expense incurred by the Holder (including, without limitation, reasonable attorneys’ fees and disbursements) in connection with the exercise of any right or remedy upon the occurrence of an Event of Default, including, without limitation, the costs of collection and reasonable attorneys’ fees and expenses, shall be paid by the Borrower within thirty (30) days of receiving written notice thereof from the Holder. Any such expense incurred by the Holder and not timely paid by the Borrower shall be added to the other obligations hereunder and shall earn interest at the same rate per annum as the principal hereunder.

 

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e. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Texas without giving effect to any conflict or choice of laws principles. Any litigation involving this Note shall be brought in Collin County, Texas.

 

f. Transfer; Successors and Assigns. The terms and conditions of this Note shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. This Note and the rights, privileges and obligations of Holder hereunder, shall not be assigned, sold or transferred by Holder, in part or in full without the prior written consent of the Borrower, provided that the Holder may assign or transfer any of its rights, privileges, or obligations set forth in, arising under, or created by this Agreement to any entity controlled by, controlling or under common control with the Holder. The Borrower may not assign this Note without prior written consent of the Holder, provided that the Borrower may assign this Note to any successor of all or substantially all of its assets or business, or any entity surviving the merger, combination or consolidation with the Borrower. Notwithstanding the above, under no circumstances shall the Optional Conversion or the rights, privileges and obligations of Holder pursuant thereto be separately assigned by Holder.

 

g. Entire Agreement. This Note constitutes the full and entire agreement of the Borrower and the Holder with respect to the subject matter hereof.

 

h. Confidentiality. In addition to separate confidentiality agreement, if any, the Holder will at all times keep confidential and not divulge, use or make accessible to anyone the terms and conditions of this Note and the transactions described herein, and any non-public material information concerning or relating to the business or financial affairs of the Borrower to which such party has been or will become privy relating to this Note, except to its employees and advisors in such capacity, as required to perform its obligations hereunder, if required by law or rules of a stock exchange on which its or its parent’s securities are listed, or with the prior written consent of the Borrower.

 

i. Waiver of Jury Trial.

 

BORROWER AND HOLDER EACH HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY WITH REGARDS TO ANY “DISPUTE” AND ANY ACTION ON SUCH “DISPUTE”. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY BORROWER AND HOLDER, AND BORROWER AND HOLDER HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT. BORROWER AND HOLDER ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION HEREOF IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL. BORROWER FURTHER REPRESENTS AND WARRANTS THAT (1) IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR (2) HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND (3) EACH HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

 

[The remainder of this page intentionally left blank.]

 

9

 

 

IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by its duly authorized representatives as of the day and year first above written.

 

  SHARING SERVICES GLOBAL CORPORATION
     
  By:  
  Name: John Thatch
  Title: Chief Executive Officer

 

[Signature Page to Secured Advancing Convertible Promissory Note]

 

10

 

 

Schedule A

 

[Permitted indebtedness]

 

11

 

Exhibit 4.9

 

® Sharing Services Global Corporation

An OTCQB PUBLIC COMPANY

 

CLASS A COMMON STOCK WARRANT

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Warrant Shares:818,181,819 Issue Date: June ___, 2022
  Initial Exercise Date: June ___, 2022

 

THIS CLASS A COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, Decentralized Sharing Systems, Inc., or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date set forth herein (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on June ___, 2027 (the “Expiration Date”) but not thereafter, to subscribe for and purchase from Sharing Services Global Corporation a Nevada corporation (the “Company”), up to 818,181,819 (as subject to adjustment hereunder, the “Warrant Shares”) of the Company’s Class A Common Stock (the “Common Stock”). The purchase price of one share of Common Stock under this Warrant shall be equal to the $0.033 (the “Exercise Price).

 

1. METHOD OF EXERCISE; PAYMENT.

 

1.1 Cash Exercise. The purchase rights represented by this Warrant may be exercised by the Holder, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit “A” duly executed) at the principal office of the Company, and by the payment to the Company, by certified, cashier’s or other check acceptable to the Company or by wire transfer to an account designated by the Company, of an amount equal to the aggregate Exercise Price of the Warrant Shares being purchased.

 

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1.2 Stock Certificates. In the event of any exercise of the rights represented by this Warrant, certificates for the Warrant Shares so purchased shall be delivered to the Holder by the Company’s transfer agent within a reasonable time and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the Warrant Shares with respect to which this Warrant shall not have been exercised shall also be issued to the Holder within such time.

 

2. STOCK FULLY PAID; RESERVATION OF SHARES.

 

2.1 Fully Paid And Nonassessable Nature. All of the Warrant Shares issuable upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of the Exercise Price, therefore, be fully paid and nonassessable, and such Warrant Shares shall be free from all taxes, liens and charges with respect to the issuance thereof.

 

2.2 Reservation Of Shares. The Company shall at all times have authorized and reserved for issuance sufficient shares of its Common Stock, to provide for the exercise of the rights represented by this Warrant (the “Reserve Amount”).

 

3. ADJUSTMENTS.

 

3.1 The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price therefor shall be subject to adjustment from time to time upon the occurrence of certain events, as set out in Sections 3.2 and 3.3, below.

 

3.2 Reclassification.

 

3.2.1 In the case of any: (i) reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); or (ii) any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant); or (iii) any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance reasonably satisfactory to the holder of this Warrant).

 

3.2.2 In addition to the foregoing, the Company shall make appropriate provision without the issuance of a new Warrant, so that the holder of this Warrant shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the Warrant Shares of Common Stock theretofore issuable upon exercise of this Warrant: (i) the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of Warrant Shares of Common Stock then purchasable under this Warrant, or (ii) in the case of such a merger or sale in which the consideration paid consists all or in part of assets other than securities of the successor or purchasing corporation, at the option of the Holder of this Warrant, the securities of the successor or purchasing corporation having a value at the time of the transaction equivalent to the fair market value of the Common Stock at the time of the transaction.

 

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3.2.3 The provisions of this Section 3.2 shall similarly apply to successive reclassifications, changes, mergers and transfers.

 

3.2.4 The provisions of this Section 3.2 shall not apply to any transaction with any related party or Affiliate (as defined in Rule 405 of the Securities Act, “Affiliate”) of the Holder,

 

3.3 Stock Splits, Dividends And Combinations.

 

3.3.1 In the event that the Company shall at any time subdivide the outstanding shares of Common Stock or shall issue a stock dividend on its outstanding shares of Common Stock, the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Exercise Price shall be proportionately decreased.

 

3.3.2 In the event that the Company shall at any time combine the outstanding shares of Common Stock the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such combination shall be proportionately decreased, and the Exercise Price shall be proportionately increased., effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.

 

4. NOTICE OF ADJUSTMENTS.

 

Whenever the number of Warrant Shares purchasable hereunder or the Exercise Price thereof shall be adjusted pursuant to Section 3 hereof, the Company shall provide notice to the Holder setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the number and class of shares which may be purchased thereafter and the Exercise Price therefor after giving effect to such adjustment.

 

5. FRACTIONAL SHARES.

 

5.1 No Requirement. The Company shall not be required to issue fractional shares of Common Stock on the exercise of Warrants.

 

5.2 Aggregation Calculation. If more than one Warrant shall be presented for exercise in full at the same time by the same Holder, the number of full shares of Common Stock which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of shares of Common Stock acquirable on exercise of the Warrants so presented.

 

5.3 Nearest Whole Value. If any fraction of a share of Common Stock would, except for the provisions of this Section, be issuable on the exercise of any Warrant (or specified portion thereof) then such fractional share shall be rounded up to the nearest whole share.

 

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6. REPRESENTATIONS OF THE COMPANY.

 

Subject to shareholder approval for increasing the authorized Class A Common Stock shares, the Company represents that all corporate actions on the part of the Company, its officers, directors and shareholders necessary for the sale and issuance of the Warrant Shares pursuant hereto and the performance of the Company’s obligations hereunder were taken prior to and are effective as of the Issuance Date of this Warrant.

 

7. REPRESENTATIONS AND WARRANTIES BY THE HOLDER.

 

The Holder represents and warrants to the Company as follows:

 

(i) This Warrant and the Warrant Shares issuable upon exercise thereof are being acquired for Holder’s own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act of 1933, as amended (the “Act”). Upon exercise of this Warrant, the Holder shall, if so requested by the Company, confirm in writing, in a form satisfactory to the Company, that the securities issuable upon exercise of this Warrant are being acquired for investment and not with a view toward distribution or resale.

 

(ii) The Holder understands that the Warrant and the Warrant Shares have not been registered under the Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Act pursuant to Section 4(2) thereof, and that they must be held by the Holder indefinitely, and that the Holder must therefore bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Act or is exempted from such registration.

 

(iii) The Holder has such knowledge and experience in financial and business matters that Holder is capable of evaluating the merits and risks of an investment in the Warrant and the Warrant Shares purchasable pursuant to the terms of this Warrant and of protecting its interests in connection therewith.

 

(iv) The Holder is able to bear the economic risk of the purchase of the Warrant Shares pursuant to the terms of this Warrant.

 

8. RESTRICTIVE LEGEND.

 

The Warrant Shares (unless registered under the Act) shall be stamped or imprinted with a legend in substantially the following form:

 

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT.

 

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9. RESTRICTIONS UPON TRANSFER AND REMOVAL OF LEGEND.

 

9.1 Registration Condition. The Company need not register a transfer of this Warrant or Warrant Shares bearing the restrictive legend set forth in Section 8 above, unless the conditions specified in such legend are satisfied. The Company may also instruct its transfer agent not to register the transfer of the Warrant Shares, unless one of the conditions specified in the legend referred to in Section 8 above is satisfied.

 

9.2 Opinion Exemption. Notwithstanding the provisions of Section 9.1 above, no opinion of counsel shall be necessary for a transfer without consideration by any holder: (i) if such holder is a partnership, a partner or a retired partner of such partnership who retires after the date hereof or to the estate of any such partner or a retired partner, or (ii) if such holder is a corporation, to a shareholder of such corporation, or to any other corporation under common control, direct or indirect, with such holder. Holder, or any subsequent holder, shall immediately inform Company of any assignment, transfer, or other transfer of Warrant including the identification of parties; details of consideration; and other agreements evidencing the Warrant transfer.

 

10. LIMITATIONS ON RIGHTS OF WARRANT HOLDERS.

 

10.1 Limitation On Voting And Economic Rights. The Holder of this Warrant shall not be entitled as a Warrant holder, to vote or receive dividends or be deemed the holder of any Warrant Shares or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised and the Warrant Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein.

 

10.2 No Liquidation Rights. The Holder of this Warrant will not be entitled to share in the assets of the Company in the event of a liquidation, dissolution or the winding up of the Company.

 

11. NOTICES.

 

11.1 Notice Method. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier:

 

(a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid;

 

(b) upon delivery, if delivered by hand;

 

Common Stock Warrent - Page 5 of 9 

 

 

(c) one (1) Business Day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid; or

 

(d) one (1) Business Day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed: (i) if to the Holder, at the Holder’s address as set forth on the books of the Company, and (ii) if to the Company, at the address of its principal corporate offices (Attention: Catherine J. McCain, General Counsel), or at such other address as a party may designate by ten (10) days advance written notice to the other party pursuant to the provisions above.

 

11.2 Business Day Defined. The term “Business Day” shall mean Monday through Friday of a calendar week, except for Federal banking holidays.

 

12. REGISTRATION RIGHTS AGREEMENT.

 

For the term of this Warrant, the Holder shall have registration rights related to the Warrant Shares as set out in Sections 12.1, 12.2, 12.3 and 12.4 below:

 

12.1 Right To Piggyback. Whenever the Company proposes to register any of its securities (including any proposed registration of the Company’s securities by any third party) under the Securities Act and the registration form to be used may be used for the registration of any of the Warrant Shares, the Company shall give prompt written notice to the Holder of its intention to effect such a registration and, subject to the terms of this Section 12, shall include in such registration all Warrant Shares with respect to which the Company has received a written request, within ten (10) days after the receipt of the Company’s notice, for inclusion therein (“Piggyback Registration”).

 

12.2 Piggyback Expenses. The registration expenses of the Holder shall be paid by the Company in all Piggyback Registrations.

 

12.3 Priority On Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company shall include in such registration: (i) first, the securities the Company proposes to sell; (ii) second, the securities requested to be included in such registration by the Holder, pro rata with all other common stockholders with Piggyback Registration rights on the basis of the number of shares requested to be included therein by each such holder; and (iii) third, other securities requested to be included in such registration pro rata among the holders thereof on the basis of the number of shares requested to be included therein.

 

12.4 Priority On Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company’s securities and the managing underwriters advise the Company that, in their opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company shall include in such registration: (i) first, the securities requested to be included therein by the holders requesting such registration; (ii) second, the securities requested to be included in such registration by the Holder, pro rata with all other common stockholders with Piggyback Registration rights on the basis of the number of shares requested to be included therein by each such Holder; and (iii) third, other securities requested to be included in such registration pro rata among the holders thereof on the basis of the number of shares requested to be included therein.

 

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13. MOST FAVORED NATION.

 

While this Warrant is outstanding, if the Company sells or issues any warrants or subsequent convertible instruments (“Subsequent Convertible Instruments”) on terms that differ from this Warrant, the Company will provide the Holder with written notice of such sale or issuance, including the terms of the Subsequent Convertible Instruments, no later than five (5) days after the closing date thereof. In the event the Holder determines, in its sole discretion, that any Subsequent Convertible Instrument contains terms more favorable to the holder(s) thereof than the terms set forth in this Warrant the Holder may elect to exchange the Warrant for such Subsequent Convertible Instrument based on the amount of Warrant Shares exercisable under the Warrant, if any, thereunder. If the Holder elects to exchange the Warrant for a Subsequent Convertible Instrument, the Company agrees to enter into a side letter with the Holder relating to such Subsequent Convertible Instrument, which side letter will have substantially the same terms as those set forth in this Agreement.

 

14. Replacement of Warrants.

 

On receipt of evidence reasonably satisfactory to the Company in its sole discretion of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

 

15. Repurchase on Sale, Merger, or Consolidation of the Company.

 

15.1 Acquisition. For the purpose of this Warrant, “Acquisition” means (a) any sale or other disposition of all or substantially all of the assets (including intellectual property) of the Company, or (b) any reorganization, consolidation, merger or sale of the voting securities of the Company or any other transaction where the holders of the Company’s securities before the transaction beneficially own less than fifty percent (50%) of the outstanding voting securities of the surviving entity after the transaction.

 

15.2 Assumption Of Warrant. If upon the closing of any Acquisition the successor entity assumes the obligations of this Warrant, then this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly so that the aggregate Warrant Price of all Shares is unchanged. The Company shall use reasonable efforts to cause the surviving corporation to assume the obligations of this Warrant.

 

15.3 Non-assumption. If upon the closing of any Acquisition the successor entity does not assume the obligations of this Warrant and Holder has not otherwise exercised this Warrant in full, then this Warrant shall be deemed to have been automatically converted pursuant to Section 14.2 above and thereafter Holder shall participate in the Acquisition on the same terms as other holders of the same class of securities of the Company.

 

16. GOVERNING LAW.

 

This Warrant and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to the conflicts of law provisions of the State of Texas or of any other state.

 

17. UNDERLYING Agreement.

 

This Warrant is issued in furtherance of the terms of that certain “Securities Purchase Agreement” executed by and between the Company and the Investor dated June __, 2022.

 

This Warrant is effective as of the Issuance Date.

 

The remAinder of this page is left intentionally blank

 

Signature pages are set out below

 

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  COMPANY:
     
  SHARING SERVICES GLOBAL CORPORATION,
  a Nevada corporation
     
  By:  
  Name: John Thatch
  Title: Chief Executive Officer
     
  HOLDER:
     
  DECENTRALIZED SHARING SYSTEMS, INC.,
  a Nevada corporation
     
  By:  
  Name: Frank D. Heuszel
  Title: President

 

Common Stock Warrent - Page 8 of 9 

 

 

EXHIBIT “A”

 

NOTICE OF EXERCISE

 

To: Sharing Services Global Corporation
  1700 Coit Road, Suite 290
  Plano, Texas 75075
  Attention: Catherine J. McCain, General Counsel

 

1. Warrants Being Exercised. I, the undersigned Warrant Holder, hereby elect to purchase Warrant Shares of Sharing Services Global Corporation pursuant to the terms of the attached Warrant.

 

2. Exercise Requisite.

 

The undersigned shall exercise the attached Warrant by means of a cash payment, and tenders herewith or by concurrent wire transfer payment in full for the purchase price of the shares being purchased, together with all applicable transfer taxes, if any.

 

3. Stock Issuance. Please issue a certificate or certificates representing such Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

     
  (Name)  
     
     
     
     
  (Address)  

 

4. Representations And Warrants Of Warrant Holder. The undersigned hereby represents and warrants that the Warrant Shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale, in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares and all representations and warranties of the undersigned set forth in Section 7 of the attached Warrant are true and correct as of the date hereof.

 

  WARRANT HOLDER:
     
  By:           
  Name:  
  Title:  
     
  Date:  

 

Common Stock Warrent - Page 9 of 9 

 

 

EXHIBIT 10.9

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”), is dated as of June ___, 2022, entered into by and among Sharing Services Global Corporation, a Nevada corporation (the “Company”), and the Decentralized Sharing Systems, Inc., a Nevada corporation (the “Investor”).

 

WITNESSETH:

 

WHEREAS, the Company and Investor are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and rule 506(b) of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act;

 

WHEREAS, the Company has authorized a new convertible note of the Company in the form attached hereto as Exhibit A (the “Note”), which Note shall be convertible into shares of Class A Common Stock of the Company (such shares issuable pursuant to the terms of the Note upon conversion or otherwise, collectively, the “Note Conversion Shares”), in accordance with the terms of the Note;

 

WHEREAS, pursuant to the purchase of the Note, the Company will issue to the Investor warrants substantially in the form attached hereto as Exhibit B (the “Warrants”), which Warrants shall be exercisable into shares of Common Stock of Class A Common Stock of the Company (such shares issuable pursuant to the terms of the Warrants upon conversion or otherwise, collectively, the “Warrant Conversion Shares”) (together with the Note Conversion Shares, the “Conversion Shares”), in accordance with the terms of the Warrants;

 

WHEREAS, the Investor wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, a Note pursuant to which the Company may request advances in the amount of up to $27,000,000.00 (the “Investment Amount”); and

 

WHEREAS, the Company has requested an advance in the amount of the entire Investment Amount.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1. PURCHASE AND SALE OF NOTE

 

(a) Purchase of the Note. Subject to the terms and conditions of this Agreement, the Company shall issue and sell to the Investor, and the Investor agreed to purchase from the Company the Note in the original principal amount of the Investment Amount. The Note shall be substantially in the form attached as Exhibit A to this Agreement.

 

(b) Closing. The initial closing of the purchase and sale of the Note (the “Closing”) shall take place on the date when all of the Transaction Documents have been executed and delivered by the applicable parties and the other conditions to the Closing set forth herein and in Sections 5 and 6 below have been satisfied or waived (or such later date as is mutually agreed to by the Company and the Investor) (the “Closing Date”).

 

(c) Form of Payment. The Investor shall pay the Investment Amount to the Company for the Note to be issued and sold to the Investor, by wire transfer of immediately available fund. The Investment Amount shall be funded, by wire transfer, to a bank account of the Company that will be opened no later than 5 days from signing this Agreement.

 

 

 

 

(d) Delivery of the Note. On the Closing Date, the Company shall deliver to the Investor the Note to be issued at such Closing, duly executed on behalf of the Company.

 

(e) Origination Fee; Other Expenses. Subject to the terms and conditions of this Agreement, at the Closing (as defined herein) the Company hereby agrees to pay to the Investor an origination fee equal of $270,000.00 (the “Origination Fee”) in accordance with that certain Fee Letter Agreement between the Company and Investor, substantially in the form attached as Exhibit C to this Agreement. The Origination Fee is payable at the Investor’s election in cash or in shares of the Company’s Class A Common Stock at price of $0.033 per share, and such shares of the Company’s Class A Common Stock issued upon payment of the Origination Fee are referred to herein as the “Origination Fee Shares.” The Note, the Warrant, the Note Conversion Shares, the Warrant Shares and Origination Fee Shares are sometimes collectively referred to herein as the “Securities.” On the Closing Date, Company shall delivery to the Investor the Origination Fee or the Origination Fee Shares to be issued at closing, as applicable. At the Closing (as defined herein), the Company shall pay the expenses related to the Closing (including, without limitation, the UCC filing and related expenses) set forth in the expense statement provided by the Investor.

 

(f) No Variable Rate Transactions. While the Note is due and payable, the Company shall not enter into any Variable Rate Transactions with any party other than the Investor. “Variable Rate Transaction” means a means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Class A Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Class A Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Class A Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price.

 

(g) Piggyback Registration Rights. If the Company at any time determines to file a registration statement under the Securities Act to register the offer and sale, by the Company, of Class A Common Stock (other than (x) on Form S-4 or Form S-8 under the Securities Act or any successor forms thereto, (y) an at-the-market offering, or (z) a registration of securities solely relating to an offering and sale to employees or directors of the Company pursuant to any employee stock plan or other employee benefit plan arrangement), the Company shall, as soon as reasonably practicable, give written notice to the Investor of its intention to so register the offer and sale of Class A Common Stock and, upon the written request, given within five (5) business days after delivery of any such notice by the Company, of the Investor to include in such registration statement Conversion Shares (which request shall specify the number of Conversion Shares proposed to be included in such registration), the Company shall cause all such Registrable Shares up to 100% of the total registered offering to be included in such registration statement on the same terms and conditions as the Class A Common Stock otherwise being sold pursuant to such registered offering, subject to SEC rules and regulations.

 

2. ISSUANCE OF WARRANTS.

 

(a) Issuance of the Warrants. Subject to the terms and conditions of this Agreement, the Company shall issue to the Investor, Warrants to purchase up to 818,181,819 shares the Company’s Class A Common Stock, in substantially the form attached hereto as Exhibit B, exercisable at the option of the Investor at an exercise price of $0.033 per share. The Warrants shall be exercisable for a period of five (5) years from the Closing Date.

 

(b) Delivery of Warrants. On the Closing Date, the Company shall deliver to the Investor the Warrants to be issued at such Closing, duly executed on behalf of the Company. The Investor shall deliver to the Company a countersigned signature page.

 

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3. REPRESENTATIONS AND WARRANTIES.

 

(a) Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to the Investor:

 

(i) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing, and, if applicable under the laws of the jurisdiction in which they are formed, in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification. “Subsidiaries” means any Person in which the Company, directly or indirectly, controls or operates all or any part of the business, operations or administration of such person, and each of the foregoing, is referred to herein as a “Subsidiary.”

 

(ii) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s shareholders in connection herewith or therewith. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. “Transaction Documents” means, collectively, this Agreement, the Note, the Warrants, the Irrevocable Transfer Agent Instructions (as defined below) and each of the other agreements and instruments entered into or delivered by any of the parties hereto in connection with the transaction contemplated hereby and thereby, as may be amended from time to time.

 

(iii) Issuance of Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. Upon issuance or conversion or conversion in accordance with the Note or Warrants, the Note Conversion Shares and/or Warrant Conversion Shares, respectively, when issued and payment is made, if required, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights or Liens with respect to the issue thereof, with the holder being entitled to all rights accorded to a holder of Class A Common Stock. Subject to the accuracy of the representations and warranties of the Investor in this Agreement, the offer and issuance by the Company of the Securities is exempt from registration under the Securities Act.

 

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(iv) Reservation of Conversion Shares. The Company shall at all times during which the Warrants and Note are outstanding or the Investor owns any Warrant exercisable for shares of the Company’s Class A Common Stock, the Company will reserve for the Investor from its authorized and unissued shares of Class A Common Stock a number of shares of Class A Common Stock equal to the amount of shares necessary to provide for the issuance of Class A Common Stock upon the full exercise of Warrants and full conversion of the Note.

 

(v) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, anti-dilution or similar adjustments, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(vi) Due Execution and Delivery. The Transaction Documents constitute a legal, valid and binding obligation of the Company and, when executed and enforced in accordance with their terms; no consent approval, authorization, order, filing, registration or qualification of or with any court, governmental authority or third person is required to obtained by the Company in connection with the execution and delivery of the Transaction Documents, or the performance of the Company’s obligations thereunder, other than in connection with the actions of its stock transfer agent, VStock Transfer, LLC.

 

(vii) Capitalization. No person or entity has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. The issuance and sale of the Securities will not obligate the Company or any Subsidiary to issues shares of Class A Common Stock or other securities to any person or entity (other than the Investor). Except with respect to various agreements with certain shareholders regarding lock up agreements and stock voting trusts, there are no outstanding securities or instruments of the Company or and Subsidiary with any provision that adjusts the exercise, conversion or reset price of such security or instrument upon an issuance of the Securities by the Company or any Subsidiary.

 

(viii) SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act of 1934, as amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) thereof, for the one year preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the SEC with respect thereto as in effect at the time of filing.

 

(ix) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the SEC Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements disclosed in filings made with the SEC, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer or director, except as disclosed in the Company’s SEC Reports or pursuant to existing Company stock option plans.

 

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(x) Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which has not been previously disclosed to the Investor. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company or any current or former director or officer of the Company. The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

(xi) Listing and Maintenance Requirements. The Company has not, in the twelve (12) months preceding the date hereof, received written notice from the OTCQB to the effect that the Company is not in compliance with the listing or maintenance requirements of the OTCQB. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

 

(xii) Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case of (i), (ii) and (iii) as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(xiii) No Integrated Offering. Neither the Company, nor any of its Affiliates (as defined in Rule 405 of the Securities Act, “Affiliate”), nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the Securities under the Securities Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act.

 

(b) Representations and Warranties of the Investor. Investor hereby makes the following representations and warranties to the Company:

 

(i) Investment Purpose. Investor is acquiring the Securities, in each case, own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, such Buyer reserves the right to dispose of the Securities at any time in accordance with or pursuant to an effective registration statement covering such Securities, or an available exemption under the Securities Act. The Buyer agrees not to sell, hypothecate or otherwise transfer the Securities unless such Securities are registered under the federal and applicable state securities laws or unless, in the opinion of counsel satisfactory to the Company, an exemption from such law is available.

 

(ii) Investor Status. At the time such Investor was offered the Securities, it was, and at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Investor is not a registered broker dealer registered under Section 15(a) of the Exchange Act, or a member of the Financial Industry Regulatory Authority, Inc. or an entity engaged in the business of being a broker dealer. Such Investor is not affiliated with any broker dealer registered under Section 15(a) of the Exchange Act, or a member of the Financial Industry Regulatory Authority, Inc. or an entity engaged in the business of being a broker dealer.

 

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(iii) General Solicitation. Investor is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media, broadcast over television or radio, disseminated over the Internet or presented at any seminar or any other general solicitation or general advertisement.

 

(iv) Experience of Investor. Investor, either alone or together with its representatives has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Investor understands that it must bear the economic risk of this investment in the Securities indefinitely, and is able to bear such risk and is able to afford a complete loss of such investment.

 

(v) Access to Information. Investor acknowledges that it has been afforded: (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and each Subsidiary and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Neither such inquiries nor any other investigation conducted by or on behalf of such Investor or its representatives or counsel shall modify, amend or affect such Investor’s right to rely on the truth, accuracy and completeness of the Company’s representations and warranties contained in the Transaction Documents.

 

(vi) Due Execution of the Delivery. The Transaction Documents constitute a legal, valid and binding obligation of the Investor and, when executed and enforced in accordance with their terms; no consent approval, authorization, order, filing, registration or qualification of or with any court, governmental authority or third person is required to obtained by the Company in connection with the execution and delivery of the Transaction Documents, or the performance of the Company’s obligations thereunder.

 

(vii) Familiarity. The Investor acknowledges that, by virtue of its existing relationship with members of the board of directors of the Company, it possesses certain knowledge about and is familiar with the business, financial condition, and affairs of the Company, and is making this investment, in part, in reliance upon such knowledge and familiarity.

 

4. OTHER AGREEMENTS OF THE PARTIES

 

(a) Transfer Restrictions. The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement, or Rule 144, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights and obligations of an Investor under this Agreement.

 

(b) Legends. The Investor agree to the imprinting, so long as is required by this Section 4, of a legend on any of the Securities in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE] HAS [NOT] BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). THESE SECURITIES [AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY] MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) IN COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT, IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, (C) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, AND THE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO THE COMPANY AN OPINION OF COUNSEL OR OTHER EVIDENCE OF EXEMPTION, IN EITHER CASE REASONABLY SATISFACTORY TO THE COMPANY.

 

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The Company acknowledges and agrees that the Investor may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and, if required under the terms of such arrangement, the Investor may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the Investor’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Transaction Documents, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling shareholders of a registration statement thereunder.

 

5. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL

 

(a) The obligations of the Company hereunder to issue and sell the Securities to the Investor at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the sole benefit and may be waived by the Company at any time in its sole discretion by providing the Investor with prior written notice thereof:

 

(i) The Investor shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company.

 

(ii) The Investor shall have delivered to the Company the Investment Amount for the Note being purchased by the Investor, within 5 days after signing this Agreement.

 

(iii) The representations and warranties of the Investor are true and accurate in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date in (unless as of a specific date therein in which case they shall be accurate as of such date).

 

6. CONDITIONS TO THE INVESTOR’S OBLIGATION TO PURCHASE

 

(a) The obligations of the Investor hereunder to purchase the Securities at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the sole benefit and may be waived by the Investor at any time in its sole discretion by providing the Investor with prior written notice thereof:

 

(i) The Company shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company.

 

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(ii) The Company shall have delivered to the Investor the (A) Origination Fee, if any; (B) Origination Fee Shares, if any; (C) Note; (D) the security agreement in the form attached hereto as Exhibit D (the “Security Agreement”); (E) the guaranties in the form attached hereto as Exhibit E (the “Guaranties”); and (F) Warrants.

 

(iii) The Company shall have issued irrevocable instructions to its transfer agent, and any subsequent transfer agent, to issue certificates or credit shares to the applicable balance accounts of such transfer agent, registered in the name of the Investor or its respective nominee(s), for the Conversion Shares in such amounts as specified from time to time by the Investor substantially in the form of Exhibit F attached hereto (the “Irrevocable Transfer Agent Instructions”), an executed copy of which shall be delivered to the Investor.

 

(iv) The representations and warranties of the Company are true and accurate in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date in (unless as of a specific date therein in which case they shall be accurate as of such date).

 

(iv) There shall have been no Material Adverse Effect with respect to the Company since the date hereof.

 

(v) From the date hereof to the Closing Date, trading in the Class A Common Stock shall not have been suspended by the Commission or any Trading Market and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Investor, makes it impracticable or inadvisable to purchase the Securities at the Closing. “Trading Market” means any of the following markets or exchanges on which the Ordinary Shares and/or ADSs are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

 

7. MISCELLANEOUS

 

(a) Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.

 

(b) Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. At or after the Closing, and without further consideration, the Company will execute and deliver to the Investors such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents.

 

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(c) Notices. Any notice, consents, waivers or other communication required or permitted to be given hereunder shall be in writing and will be deemed to have been delivered: (i) upon receipt, when personally delivered; (ii) upon receipt when sent by certified mail, return receipt requested, postage prepaid; (iii) when sent, if by e-mail, (provided that such sent e-mail is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient’s e-mail server that such e-mail could not be delivered to such recipient); or (iv) one (1) business day after deposit with a nationally recognized overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses and email addresses for such communications shall be:

 

  If to the Company, to: Sharing Services Global Corporation
    1700 Coit Road, Suite 290
    Plano, Texas 75075
    Attention: Chief Executive Officer
    JThatch@shrginc.com
     
    Sharing Services Global Corporation
    1700 Coit Road, Suite 290
    Plano, Texas 75075
    Attention: General Counsel
    CMccain@shrginc.com
     
  If to the Investor, to: Decentralized Sharing Services, Inc.
    1400 Broadfield, Suite 100
    Houston, Texas 77084
    Attention: President
    frank.heuszel@dssworld.com

 

(d) Waivers. Either hereto may by written notice to the other: (i) extend the time for the performance of any of the obligations or other actions of the other party under this Agreement; (ii) waive compliance with any of the conditions or covenants of the other party contained in this Agreement; and (iii) waive or modify performance of any of the obligations of the other party under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without any limitations, any investigation by or on behalf of either party, shall be deemed to constitute a wavier by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The wavier by the either party hereof of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party’s rights or privileges hereunder or shall be deemed a waiver of such party’s rights to exerciser the same at any subsequent time or times hereunder.

 

(e) Conflicts of Interest. The Company and the Investor, for themselves and on behalf of their affiliates, successors and assigns, expressly waive any conflicts of interest or potential conflicts of interest and agree that the each of the Company and the Investor, and its affiliates, respectively, shall have no liability to the other party or their affiliates, successors and assigns with respect to such conflicts of interest or potential conflicts of interest.

 

(f) Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

(g) Assignability. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by either the Company or Investor without the prior written consent of the other parties hereto, which may not be unreasonably withheld provided that such Assignment is to an Affiliate.

 

(h) Amendments. Neither this Agreement nor any term or provision hereof may be amended, modified, waived or supplemented orally, but only by a written consent executed by the parties hereto.

 

(i) Publicity. The Company and the Investor shall have the right to review a reasonable period of time before issuance of any press releases, SEC, Trading Market or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that each of the Company and Investor shall be entitled, without the prior approval of the other party, to make any press release or SEC, Trading Market or FINRA filings with respect to such transactions as is required by applicable law and regulations (although the other party shall be consulted by the disclosing party in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).

 

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(j) Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Texas without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard exclusively in federal or state court sitting in the Collin County, Texas.

 

(k) Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

 

(l) Survival. Unless this Agreement is terminated under Section 7(n), the representations and warranties of the Company and the Investor contained in Sections 3 and 4, the agreements and covenants set forth in Sections 5 and 7 shall survive the Closing for a period of twelve (12) months following the later of the date on which (x) the Note is repaid in full or converted into Note Conversion Shares in their entirety as provided in the Transaction Documents or (y) the Warrants are exercised in full; provided, however, that such representations and warranties shall in no way be affected by any investigation or knowledge of the subject matter thereof made by or on behalf of the Investor or the Company.

 

(m) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

(n) Termination. In the event that the Closing shall not have occurred on or before July 1, 2022 due to the Company’s or the Investor’s failure to satisfy the conditions set forth in Sections 5 and 6 above (and the non-breaching party’s failure to waive such unsatisfied condition(s)), the non-breaching party shall have the option to terminate this Agreement with respect to such breaching party by providing five (5) days’ written notice to such breaching party of the non-breaching party’s intent to terminate this Agreement (and if the non-breaching party is the Buyer, to also withdraw its subscription) at the close of business on such date without liability of any party to any other party.

 

(o) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

(p) Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Investor and the Company will be entitled to specific performance under this Agreement. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Investor and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above.

 

 
    COMPANY:
    Sharing Services Global Corporation
   

 

By:  
    Name: John Thatch
    Title: Chief Executive Officer

 

    INVESTOR:
    Decentralized Sharing Systems, Inc.
     
By:  
    Name: Frank D. Heuszel
    Title: President

 

[Signature Page to SPA]

 

 

 

 

EXHIBIT A

 

Secured Advancing Convertible Promissory Note

 

 

 

 

EXHIBIT B

 

Warrant

 

 

 

 

EXHIBIT C

 

Fee Letter Agreement

 

 

 

 

EXHIBIT D

 

Security Agreement

 

 

 

 

EXHIBIT E

 

Guaranties

 

 

 

 

EXHIBIT F

 

Irrevocable Transfer Agent Instructions

 

 

 

 

Exhibit 10.10

 

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT, dated as of June ___, 2022 and as it may be amended, supplemented or otherwise modified from time to time, (collectively the “Agreement”), made by and among SHARING SERVICES GLOBAL CORPORATION, a Nevada corporation (the “Grantor”), in favor of DECENTRALIZED SHARING SYSTEMS, INC., a Nevada corporation (the “Secured Party”). Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Note, as defined below.

 

WHEREAS, on the date hereof, the Secured Party has made an advance to the Grantor in an aggregate unpaid principal amount of $27,000,000.00 (the “Advance”), evidenced by that certain Secured Advancing Convertible Promissory Note dated as of June __, 2022 executed by the Grantor in favor of Secured Party (as amended, supplemented or otherwise modified from time to time, the “Note” and the loans outlined by the Note, the “Loans”) made by the Grantor and payable to the order of the Secured Party.;

 

WHEREAS, this Agreement is given by the Grantor in favor of the Secured Party to secure the payment and performance of all of the Secured Obligations; and

 

WHEREAS, it is a condition to the obligations of the Lender to make the Loans under the Note that the Grantor execute and deliver this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1. Definitions.

 

(a) Unless otherwise specified herein, all references to Sections and Schedules herein are to Sections and Schedules of this Agreement.

 

(b) Unless otherwise defined herein, terms used herein that are defined in the UCC shall have the meanings assigned to them in the UCC. However, if a term is defined in Article 9 of the UCC differently than in another Article of the UCC, the term has the meaning specified in Article 9.

 

(c) For purposes of this Agreement, the following terms shall have the following meanings:

 

Collateral” has the meaning set forth in Section 2.

 

Event of Default” has the meaning set forth in the Note.

 

First Priority” means, with respect to any lien and security interest purported to be created in any Collateral pursuant to this Agreement, such lien and security interest is the most senior lien to which such Collateral is subject (subject only to liens permitted under the Note).

 

Perfection Certificate” has the meaning set forth in Section 5.

 

Proceeds” means “proceeds” as such term is defined in section 9-102 of the UCC and, in any event, shall include, without limitation, all dividends or other income from the Collateral, collections thereon or distributions with respect thereto.

 

 
 

 

Secured Obligations” has the meaning set forth in Section 3.

 

UCC” means the Uniform Commercial Code as in effect from time to time in the State of Texas or, when the laws of any other state govern the method or manner of the perfection or enforcement of any security interest in any of the Collateral, the Uniform Commercial Code as in effect from time to time in such state.

 

2. Grant of Security Interest. The Grantor hereby pledges and grants to the Secured Party, and hereby creates a continuing First Priority lien and security interest in favor of the Secured Party in and to all of its right, title and interest in and to all assets of the Grantor, including, without limitation, the following, wherever located, whether now existing or hereafter from time to time arising or acquired (collectively, the “Collateral”):

 

(a) all fixtures and personal property of every kind and nature including all accounts (including health-care-insurance receivables), goods (including inventory and equipment), documents (including, if applicable, electronic documents), instruments, promissory notes, chattel paper (whether tangible or electronic), letters of credit, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), securities and all other investment property, commercial tort claims described on Schedule 1 hereof as supplemented by any written notification given by the Grantor to the Secured Party pursuant to Section 4(e), general intangibles (including all payment intangibles), money, deposit accounts, and any other contract rights or rights to the payment of money; and

 

(b) all Proceeds and products of each of the foregoing, all books and records relating to the foregoing, all supporting obligations related thereto, and all accessions of and to, substitutions and replacements for, and rents, profits and products of, each of the foregoing, and any and all Proceeds of any insurance, indemnity, warranty or guaranty payable to the Grantor from time to time with respect to any of the foregoing.

 

3. Secured Obligations. The Collateral secures the due and prompt payment and performance of:

 

(a) the obligations of the Grantor from time to time arising under the Note, this Agreement, any Transaction Document or otherwise with respect to the due and prompt payment of (i) the principal of and premium, if any, and interest on the Loans (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations, including fees, costs, attorneys’ fees and disbursements, reimbursement obligations, contract causes of action, expenses and indemnities, whether primary, secondary, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Grantor under or in respect of the Note and this Agreement; and

 

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(b) all other covenants, duties, debts, obligations and liabilities of any kind of the Grantor or any other document, commitment, indebtedness, guaranty of debtor, performance, and any indemnity given to the Lender, in each case whether evidenced by a note or other writing, whether allowed in any bankruptcy, insolvency, receivership or other similar proceeding, whether arising from an extension of credit, issuance of a letter of credit, acceptance, loan, guaranty, indemnification or otherwise, and whether primary, secondary, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, fixed or otherwise

 

All such obligations, covenants, duties, debts, liabilities, sums and expenses set forth in Section 3 are herein collectively referred to as the “Secured Obligations”).

 

4. Perfection of Security Interest and Further Assurances .

 

(a) The Grantor shall, from time to time, as may be required by the Secured Party with respect to all Collateral, immediately take all actions as may be requested by the Secured Party to perfect the security interest of the Secured Party in the Collateral (or in obtain the benefits of the legal mechanism equivalent to perfection in any foreign jurisdiction where any of the Collateral may be located or any foreign jurisdiction the laws of which the Collateral is subject to) including, without limitation, with respect to all Collateral over which control may be obtained within the meaning of sections 8-106, 9-104, 9-105, 9-106 and 9-107 of the UCC section 201 of the federal Electronic Signatures in Global and National Commerce Act and, as the case may be, section 16 of the Uniform Electronic Transactions Act, as applicable, the Grantor shall immediately take all actions as may be requested from time to time by the Secured Party so that control of such Collateral is obtained and at all times held by the Secured Party. All of the foregoing shall be at the sole cost and expense of the Grantor.

 

(b) The Grantor hereby irrevocably authorizes the Secured Party at any time and from time to time to file in any relevant jurisdiction any financing statements and amendments thereto that contain the information required by Article 9 of the UCC of each applicable jurisdiction for the filing of any financing statement or amendment relating to the Collateral, including any financing or continuation statements or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by the Grantor hereunder, without the signature of the Grantor where permitted by law, including the filing of a financing statement describing the Collateral as all assets now owned or hereafter acquired by the Grantor, or words of similar effect. The Grantor agrees to provide all information required by the Secured Party pursuant to this Section promptly to the Secured Party upon request.

 

(c) The Grantor hereby further authorizes the Secured Party to file with the United States Patent and Trademark Office and the United States Copyright Office (and any successor office and any similar office in any state of the United States or in any other country) this Agreement and other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by the Grantor hereunder, without the signature of the Grantor where permitted by law.

 

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(d) If the Grantor shall at any time hold or acquire any certificated securities, promissory notes, tangible chattel paper, negotiable documents or warehouse receipts relating to the Collateral, the Grantor shall immediately endorse, assign and deliver the same to the Secured Party, accompanied by such instruments of transfer or assignment duly executed in blank as the Secured Party may from time to time specify.

 

(e) If the Grantor shall at any time hold or acquire a commercial tort claim, the Grantor shall (i) immediately notify the Secured Party in a writing signed by the Grantor of the particulars thereof and grant to the Secured Party in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Secured Party and (ii) deliver to the Secured Party an updated Schedule 1.

 

(f) If any Collateral is at any time in the possession of a bailee, the Grantor shall promptly notify the Secured Party thereof and, at the Secured Party’s request and option, shall promptly obtain an acknowledgment from the bailee, in form and substance satisfactory to the Secured Party, that the bailee holds such Collateral for the benefit of the Secured Party and the bailee agrees to comply, without further consent of the Grantor, at any time with instructions of the Secured Party as to such Collateral.

 

(g) The Grantor agrees that at any time and from time to time, at the expense of the Grantor, the Grantor will promptly execute and deliver all further instruments and documents, obtain such agreements from third parties, and take all further action, that may be necessary or desirable, or that the Secured Party may request, in order to create and/or maintain the validity, perfection or priority of and protect any security interest granted or purported to be granted hereby or to enable the Secured Party to exercise and enforce its rights and remedies hereunder or under any other agreement with respect to any Collateral.

 

5. Representations and Warranties. The Grantor represents and warrants as follows:

 

(a) It has previously delivered to the Secured Party a certificate signed by the Grantor and entitled “Perfection Certificate” (“Perfection Certificate”), and that: (i) the Grantor’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof, (ii) the Grantor is an organization of the type, and is organized in the jurisdiction, set forth in the Perfection Certificate, (iii) the Perfection Certificate accurately sets forth the Grantor’s organizational identification number (or accurately states that the Grantor has none), the Grantor’s place of business (or, if more than one, its chief executive office), and its mailing address, (iv) all other information set forth on the Perfection Certificate relating to the Grantor is accurate and complete and (v) there has been no change in any such information since the date on which the Perfection Certificate was signed by the Grantor.

 

(b) All information set forth on the Perfection Certificate relating to the Collateral is accurate and complete and there has been no change in any such information since the date on which the Perfection Certificate was signed by the Grantor.

 

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(c) The Collateral consisting of securities have been duly authorized and validly issued, and are fully paid and non-assessable and subject to no options to purchase or similar rights. The Grantor holds no commercial tort claims except as indicated on Schedule 1. None of the Collateral constitutes, or is the proceeds of, (i) farm products, (ii) as-extracted collateral, (iii) manufactured homes, (iv) health-care-insurance receivables, (v) timber to be cut, (vi) aircraft, aircraft engines, satellites, ships or railroad rolling stock. None of the account debtors or other persons obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or like federal, state or local statute or rule in respect of such Collateral. The Grantor has at all times operated its business in compliance with all applicable provisions of the federal Fair Labor Standards Act, as amended, and with all applicable provisions of federal, state and local statutes and ordinances dealing with the control, shipment, storage or disposal of hazardous materials or substances.

 

(d) At the time the Collateral becomes subject to the lien and security interest created by this Agreement, the Grantor will be the sole, direct, legal and beneficial owner thereof, free and clear of any lien, security interest, encumbrance, claim, option or right of others except for the security interest created by this Agreement and other liens permitted by the Note.

 

(e) The pledge of the Collateral pursuant to this Agreement creates a valid and perfected First Priority security interest in the Collateral, securing the payment and performance when due of the Secured Obligations.

 

(f) It has full power, authority and legal right to borrow the Loans and pledge the Collateral pursuant to this Agreement.

 

(g) Each of this Agreement and the Note has been duly authorized, executed and delivered by the Grantor and constitutes a legal, valid and binding obligation of the Grantor enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and subject to equitable principles (regardless of whether enforcement is sought in equity or at law).

 

(h) No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the borrowing of the Loans and the pledge by the Grantor of the Collateral pursuant to this Agreement or for the execution and delivery of the Note and this Agreement by the Grantor or the performance by the Grantor of its obligations thereunder.

 

(i) The execution and delivery of the Note and this Agreement by the Grantor and the performance by the Grantor of its obligations thereunder, will not violate any provision of any applicable law or regulation or any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, applicable to the Grantor or any of its property, or the organizational or governing documents of the Grantor or any agreement or instrument to which the Grantor is party or by which it or its property is bound.

 

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(j) The Grantor has taken all actions required by the Secured Party to perfect the security interest of the Secured Party in the Collateral, including, without limitation, with respect to all Collateral over which control may be obtained within the meaning of sections 8-106, 9-104, 9-105, 9-106 and 9-107 of the UCC section 201 of the federal Electronic Signatures in Global and National Commerce Act and, as the case may be, section 16 of the Uniform Electronic Transactions Act, as applicable to have been obtained by the Secured Party over all Collateral with respect to which such control may be obtained pursuant to the UCC. No person other than the Secured Party has control or possession of all or any part of the Collateral.

 

6. Voting, Distributions and Receivables.

 

(a) The Secured Party agrees that unless an Event of Default shall have occurred and be continuing, the Grantor may, to the extent the Grantor has such right as a holder of the Collateral consisting of securities, other Equity Interests or indebtedness owed by any obligor, vote and give consents, ratifications and waivers with respect thereto, except to the extent that, in the Secured Party’s reasonable judgment, any such vote, consent, ratification or waiver could detract from the value thereof as Collateral or which could be inconsistent with or result in any violation of any provision of the Note or this Agreement.

 

(b) The Secured Party shall be entitled to receive and retain all dividends and other distributions with respect to the Collateral consisting of securities, other Equity Interests or indebtedness owed by any obligor.

 

(c) The Secured Party may, or at the request and option of the Secured Party the Grantor shall, notify account debtors and other persons obligated on any of the Collateral of the security interest of the Secured Party in any account, chattel paper, general intangible, instrument or other Collateral and that payment thereof is to be made directly to the Secured Party.

 

7. Covenants. The Grantor covenants as follows:

 

(a) The Grantor will not, without providing at least 30 days’ prior written notice to the Secured Party, change its legal name, identity, type of organization, jurisdiction of organization, corporate structure, location of its chief executive office or its principal place of business or its organizational identification number. The Grantor will, prior to any change described in the preceding sentence, take all actions [reasonably] requested by the Secured Party to maintain the perfection and priority of the Secured Party’s security interest in the Collateral.

 

(b) The Collateral, to the extent not delivered to the Secured Party pursuant to Section 4, will be kept at those locations listed on the Perfection Certificate and the Grantor will not remove the Collateral from such locations without providing at least 30 days’ prior written notice to the Secured Party. The Grantor will, prior to any change described in the preceding sentence, take all actions required by the Secured Party to maintain the perfection and priority of the Secured Party’s security interest in the Collateral.

 

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(c) The Grantor shall, at its own cost and expense, defend title to the Collateral and the First Priority lien and security interest of the Secured Party therein against the claim of any person claiming against or through the Grantor and shall maintain and preserve such perfected First Priority security interest for so long as this Agreement shall remain in effect.

 

(d) The Grantor will not sell, offer to sell, dispose of, convey, assign or otherwise transfer, grant any option with respect to, restrict, or grant, create, permit or suffer to exist any mortgage, pledge, lien, security interest, option, right of first offer, encumbrance or other restriction or limitation of any nature whatsoever on, any of the Collateral or any interest therein except as expressly provided for in the Note/herein or with the prior written consent of the Secured Party.

 

(e) The Grantor will keep the Collateral in good order and repair and will not use the same in violation of law or any policy of insurance thereon. The Grantor will permit the Secured Party, or its designee, to inspect the Collateral at any reasonable time, wherever located.

 

(f) The Grantor will pay promptly when due all taxes, assessments, governmental charges, and levies upon the Collateral or incurred in connection with the use or operation of the Collateral or incurred in connection with this Agreement.

 

(g) The Grantor will continue to operate its business in compliance with all applicable laws, including, without limitation, (i) all applicable provisions of the federal  Fair Labor Standards Act, as amended, (ii) all applicable provisions of federal, state and local statutes and ordinances dealing with the control, shipment, storage or disposal of hazardous materials or substances, and (iii) all applicable provisions of laws administered by and all regulations promulgated by the U.S. Food and Drug Administration and all federal, state, municipal and foreign governmental authorities that regulate the marketing, sale or manufacturing of the products sold, marketed or distributed by the Grantor or any of its Subsidiaries.

 

8. Secured Party Appointed Attorney-in-Fact. The Grantor hereby appoints the Secured Party the Grantor’s attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Secured Party’s discretion to take any action and to execute any instrument which the Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement (but the Secured Party shall not be obligated to and shall have no liability to the Grantor or any third party for failure to do so or take action). This appointment, being coupled with an interest, shall be irrevocable. The Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof.

 

9. Secured Party May Perform. If the Grantor fails to perform any obligation contained in this Agreement, the Secured Party may itself perform, or cause performance of, such obligation, and the expenses of the Secured Party incurred in connection therewith shall be payable by the Grantor; provided that the Secured Party shall not be required to perform or discharge any obligation of the Grantor.

 

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10. Reasonable Care. The Secured Party shall have no duty with respect to the care and preservation of the Collateral beyond the exercise of reasonable care. The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Secured Party accords its own property, it being understood that the Secured Party shall not have any responsibility for (a) ascertaining or taking action with respect to any claims, the nature or sufficiency of any payment or performance by any party under or pursuant to any agreement relating to the Collateral or other matters relative to any Collateral, whether or not the Secured Party has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral. Nothing set forth in this Agreement, nor the exercise by the Secured Party of any of the rights and remedies hereunder, shall relieve the Grantor from the performance of any obligation on the Grantor’s part to be performed or observed in respect of any of the Collateral.

 

11. Remedies Upon Default.

 

(a) If any Event of Default shall have occurred and be continuing, the Secured Party, without any other notice to or demand upon the Grantor, may assert all rights and remedies of a secured party under the UCC or other applicable law, including, without limitation, the right to take possession of, hold, collect, sell, lease, deliver, grant options to purchase or otherwise retain, liquidate or dispose of all or any portion of the Collateral. If notice prior to disposition of the Collateral or any portion thereof is necessary under applicable law, written notice mailed to the Grantor at its notice address as provided in Section 15 hereof ten days prior to the date of such disposition shall constitute reasonable notice, but notice given in any other reasonable manner shall be sufficient. So long as the sale of the Collateral is made in a commercially reasonable manner, the Secured Party may sell such Collateral on such terms and to such purchaser(s) as the Secured Party in its absolute discretion may choose, without assuming any credit risk and without any obligation to advertise or give notice of any kind other than that necessary under applicable law. Without precluding any other methods of sale, the sale of the Collateral or any portion thereof shall have been made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of creditors disposing of similar property. At any sale of the Collateral, if permitted by applicable law, the Secured Party may be the purchaser, licensee, assignee or recipient of the Collateral or any part thereof and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold, assigned or licensed at such sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price of the Collateral or any part thereof payable at such sale. To the extent permitted by applicable law, the Grantor waives all claims, damages and demands it may acquire against the Secured Party arising out of the exercise by it of any rights hereunder. The Grantor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Secured Obligations or otherwise. At any such sale, unless prohibited by applicable law, the Secured Party or any custodian may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. Neither the Secured Party nor any custodian shall be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing, nor shall it be under any obligation to take any action whatsoever with regard thereto. The Grantor agrees that it would not be commercially unreasonable for the Secured Party to dispose of the Collateral or any portion thereof by utilizing internet sites that provide for the auction of assets of the type included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets. The Secured Party shall not be obligated to clean-up or otherwise prepare the Collateral for sale.

 

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(b) If any Event of Default shall have occurred and be continuing, all rights of the Grantor to (i) exercise the voting and other consensual rights it would otherwise be entitled to exercise pursuant to Section 6(a) and (ii) receive the dividends and other distributions which it would otherwise be entitled to receive and retain pursuant to Section 6(b), shall immediately cease, and all such rights shall thereupon become vested in the Secured Party, which shall have the sole right to exercise such voting and other consensual rights and receive and hold such dividends and other distributions as Collateral.

 

(c) If any Event of Default shall have occurred and be continuing, any cash held by the Secured Party as Collateral and all cash Proceeds received by the Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied in whole or in part by the Secured Party to the payment of expenses incurred by the Secured Party in connection with the foregoing or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Secured Party hereunder, including reasonable attorneys’ fees, and the balance of such proceeds shall be applied or set off against all or any part of the Secured Obligations in such order as the Secured Party shall elect. Any surplus of such cash or cash Proceeds held by the Secured Party and remaining after payment in full of all the Secured Obligations shall be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus. The Grantor shall remain liable for any deficiency if such cash and the cash Proceeds of any sale or other realization of the Collateral are insufficient to pay the Secured Obligations and the fees and other charges of any attorneys employed by the Secured Party to collect such deficiency.

 

(d) If the Secured Party shall determine to exercise its rights to sell all or any of the Collateral pursuant to this Section, the Grantor agrees that, upon request of the Secured Party, the Grantor will, at its own expense, do or cause to be done all such acts and things as may be necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law.

 

12. No Waiver and Cumulative Remedies. The Secured Party shall not by any act (except by a written instrument pursuant to Section 14), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. All rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies provided by law.

 

13. SECURITY INTEREST ABSOLUTE. Notwithstanding any provision of any Transaction Document to the contrary, the Grantor hereby waives demand, notice, protest, notice of acceptance of this Agreement, notice of loans made, credit extended, Collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description. All rights of the Secured Party and liens and security interests hereunder, and all Secured Obligations of the Grantor hereunder, shall be absolute and unconditional irrespective of:

 

(a) any illegality or lack of validity or enforceability of any Secured Obligation or any related agreement or instrument;

 

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(b) any change in the time, place or manner of payment of, or in any other term of, the Secured Obligations, or any rescission, waiver, amendment or other modification of the Note, this Agreement or any other agreement, including any increase in the Secured Obligations resulting from any extension of additional credit or otherwise;

 

(c) any taking, exchange, substitution, release, impairment or non-perfection of any Collateral or any other collateral, or any taking, release, impairment, amendment, waiver or other modification of any guaranty, for all or any of the Secured Obligations;

 

(d) any manner of sale, disposition or application of proceeds of any Collateral or any other collateral or other assets to all or part of the Secured Obligations;

 

(e) any default, failure or delay, willful or otherwise, in the performance of the Secured Obligations;

 

(f) any defense, set-off or counterclaim (other than a defense of payment or performance) that may at any time be available to, or be asserted by, the Grantor against the Secured Party; or

 

(g) any other circumstance (including, without limitation, any statute of limitations) or manner of administering the Loans or any existence of or reliance on any representation by the Secured Party that might vary the risk of the Grantor or otherwise operate as a defense available to, or a legal or equitable discharge of, the Grantor or any other grantor, guarantor or surety.

 

14. Amendments. None of the terms or provisions of this Agreement may be amended, modified, supplemented, terminated or waived, and no consent to any departure by the Grantor therefrom shall be effective unless the same shall be in writing and signed by the Secured Party and the Grantor, and then such amendment, modification, supplement, waiver or consent shall be effective only in the specific instance and for the specific purpose for which made or given.

 

15. Addresses For Notices. All notices and other communications provided for in this Agreement shall be in writing and shall be given in the manner and become effective as set forth in the Note, and addressed to the respective parties at their addresses as specified on the signature pages hereof or as to either party at such other address as shall be designated by such party in a written notice to each other party.

 

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16. Continuing Security Interest; Further Actions. This Agreement shall create a continuing First Priority lien and security interest in the Collateral and shall (a) subject to Section 17, remain in full force and effect until payment and performance in full of the Secured Obligations, (b) be binding upon the Grantor, its successors and assigns, and (c) inure to the benefit of the Secured Party and its successors, transferees and assigns; provided that the Grantor may not assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the Secured Party. Without limiting the generality of the foregoing clause (c), any assignee of the Secured Party’s interest in any agreement or document which includes all or any of the Secured Obligations shall, upon assignment in accordance with Section 11(f)  of the Note, become vested with all the benefits granted to the Secured Party herein with respect to such Secured Obligations.

 

17. Termination; Release. On the date on which all Secured Obligations have been paid and performed in full, the Secured Party will, at the request and sole expense of the Grantor, (a) duly assign, transfer and deliver to or at the direction of the Grantor (without recourse and without any representation or warranty) such of the Collateral as may then remain in the possession of the Secured Party, together with any monies at the time held by the Secured Party hereunder, and (b) execute and deliver to the Grantor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement.

 

18. GOVERNING LAW. This Agreement and the Note and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement or the Note (except, as to the Note, as expressly set forth therein) and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the laws of the State of Texas. Any litigation involving this Agreement shall be brought in Harris County, Texas. Sections 11 (i) (Waiver of Jury Trial) of the Note is incorporated herein, mutatis mutandis, as if a part hereof.

 

19. Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement. This Agreement and the Note constitute the entire contract among the parties with respect to the subject matter hereof and supersede all previous agreements and understandings, oral or written, with respect thereto.

 

[signature page follows]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

  SHARING SERVICES GLOBAL CORPORATION, as Grantor
   
  By                   
  Name:  
  Title:  
  Address for Notices:
   
   
   
  DECENTRALIZED SHARING SYSTEMS, INC., as Secured Party
     
  By  
  Name:  
  Title:  
  Address for Notices:
  Decentralized Sharing Services, Inc.
  1400 Broadfield, Suite 100
  Houston, Texas 77084
  Attention: Frank D. Heuszel
  Frank.heuszel@dssworld.com

 

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Schedule 1

[COMMERCIAL TORT CLAIMS]

 

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Exhibit 10.11

 

LOAN AGREEMENT

 

THIS LOAN AGREEMENT (this “Agreement”) is effective as of June __, 2022 and is entered into by and between LINDEN REAL ESTATE HOLDINGS, LLC, a Texas limited liability company (“Borrower”), and AMERICAN PACIFIC BANCORP, INC., a Texas corporation (“Lender”).

 

RECITALS

 

A. Borrower wishes to obtain a loan in connection with the refinance of real property located at 644 North 2000 West, Lindon, Utah 84004 (the “Property”).

 

B. Borrower has applied to Lender for that loan in the stated principal amount of $5,687,500.00 (the “Loan”).

 

C. Lender is willing to make the Loan to Borrower for the purpose set forth above, all upon the terms and conditions as set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing Recitals and the covenants and conditions, representations and warranties contained herein, the parties hereto agree as follows:

 

ARTICLE 1
DEFINITIONS

 

The following terms when used in this Agreement shall, except where the context otherwise requires, have the following meanings (such definitions to be equally applicable to the singular and the plural forms thereof):

 

1.1 “Advances” shall mean disbursements under the Loan pursuant to the terms of this Agreement.

 

1.2 “Agreement” shall mean this Agreement as originally executed and as amended, modified or supplemented from time to time.

 

1.3 “Appraisal” shall mean a current appraisal of the Property engaged by and acceptable to Lender, which appraisal shall be in form and content acceptable to Bank and utilize such appraisal method or methods acceptable to Lender. Unless otherwise expressly agreed, Borrower shall be responsible for the cost of any Appraisal.

 

1.4 “Business Day” shall mean every day except a Saturday, Sunday or public holiday on which banks are required or authorized to close in the state of Utah.

 

1.5 “Closing Date” shall mean the day agreed upon between Lender and Borrower for closing of the Loan; provided, however, that all of the conditions precedent to closing specified in this Agreement or otherwise imposed by Lender shall have been satisfied.

 

1.6 “Collateral” shall refer to all real and personal property, tangible and intangible, and all products and proceeds thereof, securing the Loan at any time.

 

 

 

 

1.7 “Covenants” shall collectively mean all private and public covenants, conditions, restrictions and reservations affecting the Property, as well as all applicable zoning restrictions and requirements including all parking requirements, subdivision, environmental protection, use and building codes, laws, regulations and ordinances.

 

1.8 “Deed of Trust” shall mean the Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement of even date herewith made by Borrower for the benefit of Lender granting a valid and perfected first lien on the Collateral described therein, including without limitation the Property, securing the Note, and as the same may be amended, modified, extended, renewed, restated, or supplemented from time to time.

 

1.9 “Default” shall mean any event which constitutes an Event of Default.

 

1.10 Disposition” as such term is defined in Section 7.13.

 

1.11 “Environmental Indemnity” shall mean that certain Environmental Indemnity Agreement of even date herewith executed by Borrower and Guarantor, collectively, for the benefit of Lender.

 

1.12 “Environmental Reports” shall mean a Phase I Environmental Audit (or other or further report or assessment required by Lender or recommended by any existing or preliminary report) prepared by an environmental engineering company approved by Lender and in substance satisfactory to Lender regarding the Property.

 

1.13 “Event of Default” as such term is defined in Section 9.1.

 

1.14 “Financing Statement” shall mean any financing statement(s) (such as, for example, a UCC-1 financing statement) required to perfect Lender’s security interest in the Collateral.

 

1.15 “GAAP” shall mean those generally accepted accounting principles and practices which are recognized as such by the American Institute of Certified Public Accountants acting through its Accounting Principles Board or by the Financial Accounting Standards Board or through other appropriate boards or committees thereof and which are consistently applied for all relevant periods so as to properly reflect the financial condition, and the results of operations and statement of cash flow of Borrower, except that any accounting principle or practice required to be changed by the Accounting Principles Board or Financial Accounting Standards Board (or other appropriate board or committee of such Boards) in order to continue as a generally accepted accounting principle or practice may so be changed.

 

1.16 “Governmental Entity” or Governmental Entities” shall mean any governmental or quasi-governmental entity, agency, authority, board, commission, or governing body authorized by federal, state or local laws or regulations as having jurisdiction over Borrower, Guarantor, and/or the Property or the development thereof.

 

1.17 “Guarantor” shall mean Sharing Services Global Corporation, a Nevada corporation.

 

1.18 “Guaranty Agreement” shall mean that certain Guaranty Agreement of even date herewith executed jointly and severally by Guarantor in favor of Lender.

 

1.19 “Improvements” shall mean, as applicable, buildings and any and all infrastructure, including without limitation, systems for water, sewer, storm sewer, electrical, lighting, telephone, cable, streets, curb gutter, partial sidewalks and those public improvements required to be completed, if any.

 

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1.20 “Lien or Encumbrance” and “Liens and Encumbrances” shall mean, respectively, each and all of the following: any lease or other right to use; any assignment as security, conditional sale, grant in trust, lien, mortgage, pledge, security interest, title retention arrangement, other encumbrance, or other interest or right securing the payment of money or the performance of any other liability or obligation, whether voluntarily or involuntarily created and whether arising by agreement, document, or instrument, under any law, ordinance, regulation, or rule (federal, state, or local), or otherwise; and any option, right of first refusal, or other interest or right affecting the Collateral.

 

1.21 “Loan” shall mean the revolving loan in the Maximum Loan Amount to be made by Lender to Borrower pursuant to this Agreement, which loan shall be used to refinance the Property.

 

1.22 “Loan Costs” shall mean all fees, taxes, assessments, and other charges to be incurred under the Loan and in connection with the negotiation, documentation, analysis or funding of the Loan including, but not limited to, all loan fees, interest charges, service and inspection fees, attorneys’ fees, survey costs, title insurance and endorsement premiums, if any, environmental audit, appraisal fees, engineering inspection fees, recording fees and insurance premiums.

 

1.23 “Loan Documents” shall mean any and all documents evidencing and securing the Loan and shall include the Note, this Agreement, the Guaranty Agreement, the Deed of Trust, the Financing Statement, the Environmental Indemnity, and any other agreements, documents, or instruments evidencing, guaranteeing, securing, or otherwise relating to the Loan, as such agreements, documents, and instruments may be amended, modified, extended, renewed, or supplemented from time to time.

 

1.24 “Loan Party” shall mean Borrower, Guarantor, and each other Person that from time to time is or becomes obligated to Lender under any Loan Document.

 

1.25 “Material Adverse Occurrence” shall mean any occurrence of whatsoever nature (including, without limitation, any adverse determination in any litigation, arbitration or governmental investigation or proceeding) which materially adversely affects the present or prospective financial condition or operations of a Loan Party or the Property, or materially impairs the ability of a Loan Party to perform its obligations under the Loan Documents.

 

1.26 “Maturity Date” shall mean June 1, 2024, if demand is not otherwise made under the terms of the Note.

 

1.27 “Maximum Loan Amount” shall mean the total committed amount of the Loan to be advanced hereunder in the maximum amount of Five Million Six Hundred Eighty Seven Thousand Five Hundred US Dollars ($5,687,500.00).

 

1.28 “Note” shall mean the Demand Promissory Note of even date herewith in the stated principal amount equal to the Maximum Loan Amount, which note is made by Borrower to the order of Lender.

 

1.29 “Obligations” shall mean any and all obligations of Borrower in connection with the Loan as evidenced by the Note, this Agreement, and the other Loan Documents.

 

1.30 “Person” shall mean any natural person, corporation, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity.

 

1.31 “Restoration Conditions” as such term is defined in Section 8.1(a).

 

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1.32 “Secondary Financing” as such term is defined in Section 7.14.

 

1.33 “Survey” as such term is defined in Section 3.9.

 

1.34 “Title Company” shall mean Fidelity National Title Insurance Company.

 

1.35 “Title Policy” as such term is defined in Section 3.8.

 

Other terms defined herein shall have the meaning ascribed to them herein.

 

ARTICLE 2
The loan; generally

 

2.1 The Loan. Subject to the terms and conditions of this Agreement and the Loan Documents, Lender agrees to make the Loan to Borrower in an amount not to exceed the Maximum Loan Amount. The initial Advance on the Loan shall be for the purposes of refinancing the Property. The Loan shall be a term loan with Borrower having no right to reborrow principal that has been repaid.

 

2.2 [Reserved].

 

2.3 Demand Note. All indebtedness of Borrower to Lender under the Loan (and all Advances made hereunder and all disbursements otherwise made in accordance with this Agreement or any other Loan Document) shall be evidenced by the Note. If demand for payment is not made as provided by the Note, payments of principal and interest as set forth in the Note shall be due and payable monthly prior to the Maturity Date. Absent a demand for payment, upon the Maturity Date all outstanding principal, any unpaid accrued interest and any other monetary obligation owed to Lender shall be due and payable in full. The Note contains additional terms and conditions including, without limitation, provisions concerning the payment of default interest and late charges upon the occurrence of an Event of Default.

 

2.4 Obligations Secured by Loan Documents. All payments and disbursements made by Lender under this Agreement and the other Loan Documents whether in the form of an Advance or otherwise (including, but not limited to, the exercise of any right or remedy of Lender or the protection of Lender’s security hereunder) shall, as and when advanced or incurred, constitute additional Obligations evidenced by the Note and secured by the Deed of Trust and the other Loan Documents, whether or not the aggregate of all Obligations shall then or thereafter exceed the face amount of the Note. Without limitation upon the foregoing, in the event that Borrower shall fail to cure an Event of Default, Lender shall have the right, but not the obligation, to perform any of such covenants, agreements and obligations, and any amounts expended by Lender in doing so shall constitute obligatory Advances under this Agreement and additional Obligations evidenced by the Note and secured by the Deed of Trust and the other Loan Documents. The Loan Documents shall remain in full force and effect until Lender has no further obligation to make Advances and all Obligations are paid and performed in full.

 

2.5 Loan Fees. Upon the execution of this Agreement, Borrower shall pay to Lender a loan fee of One Hundred Forty Two Thousand One Hundred Eighty Seven and 50/100 US Dollars ($142,187.50). Such fee paid to Lender shall be deemed fully earned by Lender and is nonrefundable to Borrower, regardless of when the Loan is repaid or the aggregate amount of Advances actually made.

 

2.6 Maximum Loan Amount; Appraisal. Notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, Lender shall not be obligated to make any Advance if, after giving effect to such Advance, the sum of all indebtedness then outstanding would exceed the Maximum Loan Amount. Furthermore, Lender has the right to require at any time an Appraisal, and, in the event the Appraisal indicates a value less than Eight Million Seven Hundred Fifty Thousand US Dollars ($8,750,000.00), Borrower shall immediately make a prepayment of principal on the Loan in an amount sufficient to establish a Loan-to-value ratio of not greater than sixty-five percent (65%).

 

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ARTICLE 3
CONDITIONS PRECEDENT TO CLOSING

 

Lender’s obligation to close the Loan and make any Advance is subject to the full and complete satisfaction of the following conditions precedent, including receipt and approval by Lender of the following agreements, documents and instruments, each in form and substance satisfactory to Lender:

 

3.1 Documents. Lender shall have received and approved fully executed copies of the Loan Documents which shall have been duly authorized, executed (and, where appropriate, acknowledged), and delivered by the parties thereto and any and all other documents as Lender may deem reasonably necessary with respect to the Loan.

 

3.2 Due Diligence. Borrower shall have delivered, or caused to be delivered, to Lender all such due diligence, assurances, reports, surveys, plans, and other information as may be requested or required by Lender and in form and content as may be required by Lender including, but not limited to, (a) information with respect to the Property, (b) Environmental Reports, (c) underground storage tank analysis, (d) financial statements and other financial information as required by Lender; and (e) such certificates of insurance as required pursuant to the terms of this Agreement or as otherwise required by Lender.

 

3.3 Loan Costs. Borrower shall provide evidence reasonably satisfactory to Lender of the payment of all Loan Costs.

 

3.4 [Reserved].

 

3.5 Corporation, Limited Liability Company, or Partnership Documents. Lender shall have received a certificate of the secretary or manager of each Loan Party, in a form and content reasonably acceptable to Lender, attaching or including as applicable: (i) the certificate of incorporation and bylaws, limited liability company operating agreement, or partnership agreement, as the case may be, of the Loan Party and all amendments thereto, if the Loan Party is a general partnership or joint venture, the filed or recorded fictitious name certificate for the Loan Party and all amendments thereto, if the Loan Party is a limited partnership, the filed or recorded certificate of limited partnership of the Loan Party and all amendments thereto; (ii) certified copies of resolutions of its board of directors or, if all managers or all general partners do not sign the Loan Documents, resolutions of the members of the limited liability company or partners of the partnership, as the case may be, authorizing the Loan Party to execute, deliver, and perform its Loan Documents and to grant to Lender the Liens and Encumbrances on the Property in the Loan Documents and certifying the names and signatures of the officer(s), member(s), manager(s), or partner(s), as the case may be, of the Loan Party authorized to execute the Loan Documents and to request Advances on behalf of the Loan Party; (iii) certificate of good standing as a corporation, limited liability company, or limited partnership, as the case may be, from the jurisdiction of formation or organization of each Loan Party, and if such jurisdiction is not the State of Utah, a certificate of qualification as a foreign corporation, limited liability company, or limited partnership, as the case may be, authorized to transact business in the State of Utah; and (iv) signature and incumbency certificates of the officers of each Loan Party executing the Loan Documents.

 

3.6 Taxes. All fees and other charges in connection with the execution, delivery and recording of the Loan Documents shall have been paid, and all delinquent taxes, assessments or other governmental charges or liens affecting the Property, if any, shall have been paid. The Title Policy shall ensure that no general and special taxes or assessments encumbering the Property are delinquent and that the Property does not lie within any special or general assessment district except as approved by Lender.

 

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3.7 Title and Other Matters. Title to the Property, the legal description of the Property, and all documents and other matters relating in any way to the Loan or to the Property must be to the reasonable satisfaction of Lender. At Borrower’s expense, Borrower shall furnish Lender with a 2006 ALTA loan policy (the “Title Policy”) in the face amount of the Loan insuring the Deed of Trust as a valid first lien on the Property. The Title Policy shall (a) contain no exceptions other than those Lender approves, (b) shall be issued in substance and in form by a company or companies acceptable to Lender, and (c) shall be issued with all endorsements as Lender may require, including without limitation, the deletion of standard survey exceptions and insurance against mechanic liens prior to the Closing Date.

 

3.8 Covenants; Approvals and Permits. Borrower shall provide to Lender satisfactory evidence that Borrower has complied with all Covenants and all Approvals and Permits with respect to the Property.

 

3.9 Survey. If requested by Lender, Borrower shall have furnished to Lender, at Borrower’s expense, a current improvement survey plat (“Survey”) of the Property made in accordance with the current “Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys” and acceptable to Lender and the Title Company.

 

ARTICLE 4
advance CONDITIONS

 

4.1 Conditions Precedent to Advances. Lender’s obligation to authorize the initial Advance and each subsequent Advance shall be subject to satisfaction of the following conditions precedent:

 

(a) Lender shall have received an Advance request in such form as may be required by Lender.

 

(b) Borrower shall be in full compliance and there shall be no Default hereunder or under any of the Loan Documents, and no Default shall result from the making of the Advance; provided, however, that Lender may, in its discretion, elect to authorize Advances notwithstanding the existence of a Default, and any Advance authorized shall be deemed to have been made pursuant to this Agreement and shall be secured by the Loan Documents and shall not be deemed a cure of Borrower’s Defaults.

 

(c) All of the representation and warranties set forth in this Agreement and the other Loan Documents shall be true and correct on the date of the Advance in all material respects, except that the representations and warranties set forth in Section 5.2 referring to the financial statements, supporting schedules, and financial reports, as the case may be, shall be deemed a reference to such statements, schedules and reports then most recently delivered to Lender.

 

(d) There shall exist no Material Adverse Occurrence.

 

(e) No material litigation, arbitration or governmental investigation or proceeding shall be pending, or to the knowledge of any Loan Party threatened, against any Loan Party or affecting the operations of any Loan Party which, if determined adversely to any Loan Party, would constitute a Material Adverse Occurrence.

 

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ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS

 

In order to induce Lender to make the Loan, and as an express condition to each Advance made hereunder, each Loan Party, for itself, represents, warrants and covenants as follows, which representations, warranties and covenants shall be true and correct as of the execution hereof and shall survive the execution and delivery of the Loan Documents:

 

5.1 Organization of Loan Parties; Authority to Enter into Agreement. As applicable, each Loan Party is duly formed and validly in existence and in good standing under the laws of its organization and is duly qualified to do business and is in good standing in each jurisdiction where the nature of its business makes such qualification necessary and where the failure to so qualify permanently precludes such Loan Party from enforcing its contracts. Borrower has the right and power to purchase, occupy and develop the Property, and has full power and authority to enter into this Agreement, to borrow money as contemplated herein and to execute and carry out the provisions of the Loan Documents. Each Loan Party has full power and authority to enter into this Agreement, to borrow money as contemplated herein and to execute and carry out the provisions of the Loan Documents. The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary action of each Loan Party and no other action of any Loan Party is required for the execution, delivery and performance of the Loan Documents. The Loan Documents which have been executed and delivered pursuant to this Agreement constitute, or, if not yet executed or delivered, will when so executed and delivered, constitute valid and binding obligations of each Loan Party, respectively, each enforceable in accordance with its respective terms.

 

5.2 Financial Statements. Any loan applications, financial statements, supporting schedules, and financial reports heretofore delivered to Lender in connection with the Loan Documents by or on behalf of a Loan Party are true and correct in all material respects, and, as to Borrower, have been prepared in material accordance with GAAP or tax basis accounting, and fairly represent the respective financial conditions of the subjects thereof as of the dates thereof and for the periods covered thereby, and no Material Adverse Occurrence has occurred in the financial conditions presented therein since the respective dates thereof.

 

5.3 No Litigation. There are no actions, suits or proceedings pending, or to the knowledge of the Loan Party threatened against or affecting the Loan Party, or any of the property or assets of the Loan Party, in any court at law or in equity, or before or by any governmental or municipal authority which would reasonably be expected to materially adversely affect the ability of the Loan Party to perform their respective obligations hereunder or under any of the Loan Documents to which the Loan Party is a party, or has caused or could reasonably be expected to constitute a Material Adverse Occurrence, or could reasonably be expected to adversely affect the priority of Lender’s liens and security interests with respect to Borrower’s property or assets, except as disclosed to Lender in writing prior to the date of this Agreement.

 

5.4 Marketable Title. Borrower has good and marketable title to the Property, free and clear of all Liens and Encumbrances, excepting only the lien for general taxes for the current year and those permitted exceptions shown in Schedule B of the Title Policy, and has good and marketable title to all of its property and assets, real and personal, which secure repayment of the Note.

 

5.5 Covenants, Zoning and Codes. Borrower has complied and will continue to comply with all applicable statutes and regulations to be complied with in connection with the Property, including, without limitation and to the extent applicable, all statutes and regulations regarding environmental issues, and historical preservation acts and regulations. All permits, consents, approvals or authorizations by, or registrations, declarations, withholding of objections or filings with any governmental body or private entity necessary in connection with the valid execution, delivery and performance of this Agreement, the Loan Documents, and any and all other documents executed in connection with any of the foregoing.

 

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5.6 ADA. Borrower hereby represents, warrants and covenants that the Property is not now in violation of any material requirements of the Americans with Disabilities Act applicable to the Property. Borrower further covenants and warrants that any alterations to the Property and all new construction on the Property shall be completed in conformance with the ADA, as applicable.

 

5.7 Compliance with Hazardous Substance Covenants. Borrower represents, warrants, and covenants that the Property (including without limitation all underground storage tanks), and the use, occupancy and operation of the Property will strictly comply with all covenants and agreements of Borrower regarding hazardous substances, as defined and contained in the Environmental Indemnity, during the period of Borrower’s ownership and, to the best of Borrower’s actual knowledge, presently complies.

 

5.8 Access to the Property. All roads, streets, traffic turn lanes, and access ways necessary for the full utilization of the Property for its intended purposes have either been completed or the necessary rights of way have either been acquired by the appropriate Governmental Entity or have been dedicated to public use and accepted by the appropriate Governmental Entity.

 

5.9 Compliance With Documents. As of the date hereof, and to the best of Borrower’s knowledge, Borrower is in full compliance with all of the terms and conditions of this Agreement and the other Loan Documents, and no event has occurred and is continuing which, with the lapse of time or the giving of notice, or both, would constitute an Event of Default under this Agreement or any other Loan Document.

 

5.10 Incorporation of Representations and Warranties. Each Advance request shall constitute a certification by Borrower that the representations, warranties and covenants contained in this ARTICLE 5 are true and correct as of the date of such request, except with respect to particular representations that refer to an earlier date and except as otherwise disclosed in writing to Lender, prior to the date of such Advance request.

 

5.11 Solvency. Borrower is able to meet its debts as they become due and payable in accordance with Borrower’s ordinary business practices.

 

5.12 Survival of Representations. All representations, warranties and covenants contained in this ARTICLE 5 shall survive the delivery of the Note and the Loan Documents, and the making of the Loan evidenced thereby and any investigation at any time made by or on behalf of Lender shall not diminish its rights to rely on all of such representations and warranties.

 

ARTICLE 6
financial covenants

 

6.1 Financial Information. Borrower shall provide to Lender with such financial statements and other related information with respect to each Loan Party at such frequencies and in such form and detail as Lender may request. All financial data provided to Lender shall be deemed certified by Borrower and Guarantor to be complete, correct and accurate in all material respects as of the date submitted or dated and all financial information and reports shall be prepared and reported in material accordance with GAAP or tax basis accounting, unless otherwise expressly permitted by Lender. Without limiting the foregoing, Borrower shall provide to Lender the following:

 

(a) As soon as is available but in no event later than ninety (90) days after Borrower’s fiscal year, CPA audited financial statements for Borrower and Guarantor; and

 

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(b) As soon as is available but in no event later than sixty (60) days after each fiscal-quarter for Borrower, CPA reviewed financial statements for Borrower and Guarantor;

 

6.2 Other Items and Information. Borrower and Guarantor shall provide such other information concerning Borrower, Guarantor, the Property, and the assets, business, financial condition, operations, property, prospects, and results of operations of Borrower as Lender reasonably requests from time to time. In this regard, promptly upon request of Lender, Borrower shall deliver to Lender counterparts and/or conditional assignments as security of any and all construction contracts, receipted invoices, bills of sale, statements, conveyances, and other agreements, documents, and instruments of any nature relating to the Property or under which Borrower claims title to any materials or supplies used or to be used in the Property.

 

ARTICLE 7
GENERAL COVENANTS

 

Until the Obligations are paid and performed in full, each Loan Party agrees that, unless Lender otherwise agrees in writing in Lender’s absolute and sole discretion:

 

7.1 [Reserved].

 

7.2 Payment of Taxes. Subject to the terms and provisions of Borrower’s rights to contest taxes as set forth in the Deed of Trust, Borrower shall pay and discharge, prior to delinquency, all taxes, assessments and other governmental charges, levies or impositions against or on any of its properties and assets, as well as claims of any kind, which, if unpaid, might become a lien upon any of its properties. Borrower shall make all required deposits for tax reserves as required by the Deed of Trust. Without limiting the foregoing, Borrower shall be permitted to make distributions to its members in amounts necessary to pay such taxes without the prior consent of Lender; provided, however, that Borrower shall provide Lender with a copy of Borrower’s calculations of the amounts necessary to pay such taxes prior to making distributions to its members, which amounts shall be satisfactory to Lender in its reasonable discretion.

 

7.3 Insurance. Borrower shall maintain and deposit with Lender original certificates of insurance policies issued by insurance companies with current Best’s Key Ratings of not less than A- with a financial rating of IX and written in form and content acceptable to Lender, with appropriate mortgagee clauses in favor of Lender, providing the following minimum insurance coverages with respect to the Deed of Trust Properties:

 

(a) Comprehensive general public liability insurance in an aggregate amount acceptable to Lender (combined single limit for bodily injury and property damage and umbrella excess liability coverage), shall be in effect with Lender named as an additional insured. Such liability policies must provide comprehensive general liability insurance with coverages for Property and Operations, Products and Completed Operations, Blanket Contractual Liability, Personal Injury Liability, Broad Form Property Damage (including completed operations), Explosion Hazard, Collapse Hazard and Underground Property Damage Hazard. In addition, Borrower shall maintain in full force and effect business auto liability insurance, including all non-owned and hired autos. Such policies must be written on an occurrence basis so as to provide blanket contractual liability, broad form property damage coverage, and coverage for products and completed operations. Liability insurance under this paragraph may be provided under a blanket policy that specifically refers to the Property.

 

(b) If the Property, or any part thereof, lies within a “special flood hazard area” as designated on maps prepared by the Department of Housing and Urban Development, a National Flood Insurance Association standard flood insurance policy, plus insurance from a private insurance carrier, if necessary, for the duration of the Loan in the amount of the full insurable value of the completed Improvements.

 

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(c) Fire and extended coverage property damage insurance, including, but not limited to all risk insurance, in an amount equal to the full replacement value of the Improvements as shown by appraisal, without coinsurance or deducting for depreciation, containing a waiver of subrogation clause and a deductible amount acceptable to Lender, with Lender named as an additional insured and as a loss payee. Such policy shall not contain an exclusion for terrorist losses and shall include earthquake coverage.

 

(d) Boiler and machinery insurance when risks covered thereby are present and Lender requires such insurance.

 

Each of the foregoing policies shall contain a clause requiring thirty (30) calendar days’ notice to Lender of cancellation, termination or material modification. Borrower shall provide proof of premiums paid upon the Lenders’ written request and, throughout the term of the Loan, shall provide evidence to Lender no later than thirty (30) calendar days prior to expiration of each annual policy of payment of renewal premiums and continuation of insurance coverage.

 

7.4 Notices. Each Loan Party, each for itself or himself, as soon as practicable, shall give notice to Lender of:

 

(a) The commencement of any material uninsured litigation relating to any Loan Party or relating to the transactions contemplated by this Agreement;

 

(b) The commencement of any material arbitration or governmental investigation or proceeding not previously disclosed by the Loan Party to Lender in writing which has been instituted or, to the knowledge of the Loan Party, threatened against any Loan Party or to which its properties or assets are subject which, if determined adversely to the Loan Party would constitute a Material Adverse Occurrence;

 

(c) Any adverse development which occurs in any litigation, arbitration or governmental investigation or proceeding previously disclosed by any Loan Party to Lender which, if determined adversely to any Loan Party would constitute a Material Adverse Occurrence; or

 

(d) Any Event of Default under this Agreement or the Loan Documents.

 

7.5 Books and Records, Periodic Audits. Borrower shall keep books and records concerning the Property reflecting all of its business affairs and transactions in material accordance with GAAP or tax basis accounting and permit Lender, and its representatives and agents at reasonable times and intervals and upon reasonable notice to Borrower, to visit all of its offices, discuss its financial matters with officers of Borrower and its accountant (and by this provision Borrower authorizes its accountants to participate in such discussions) and examine any of its books and other corporate records.

 

7.6 Inconsistent Agreements. No Loan Party shall enter into any agreement containing any provision that would be violated or breached by Borrower in the performance of its obligations under any Loan Document.

 

7.7 Accuracy of Information. All factual information heretofore or herewith furnished by or on behalf of each Loan Party to Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of each Loan Party to Lender will be true and accurate in every material respect on the date as of which such information is dated or certified and no such information contains any material misstatement of fact or omits to state a fact or any fact necessary to make the statements contained therein not materially misleading.

 

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7.8 Compliance with Laws. Borrower shall carry on its business activities in substantial compliance with all applicable federal or state laws and all applicable rules, regulations and orders of all governmental bodies and offices having power to regulate or supervise its business activities.

 

7.9 Conduct of Business. Borrower shall maintain and keep its assets, property and equipment in good repair, working order and condition and from time to time make or cause to be made all needed renewals, replacements and repairs.

 

7.10 Maintain Business. Borrower shall continue to engage primarily in the business being conducted on the date of this Agreement until it shall receive the written consent of Lender to do otherwise, such consent shall not be unreasonably withheld.

 

7.11 Existence; Changes. Borrower shall not dissolve, liquidate or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets of or interest in any other Person.

 

7.12 Change in Ownership Interests in Borrower. Borrower will not suffer to occur or exist, whether occurring voluntarily or involuntarily, after the date of this Agreement any change in the management or control of Borrower or the legal or beneficial ownership of any member interests in Borrower, except for transfers of membership interests in the case of estate planning purposes which do not affect the management or control of Borrower, nor shall Borrower issue or repurchase any member interests in Borrower or grant any options or enter into any contracts to do any of the foregoing, unless it receives written consent from Lender, which consent shall be in Lender’s sole discretion (a “Borrower Control Event”).

 

7.13 Sale or Disposition of Assets. Without the prior written consent of Lender, which consent may be withheld in Lender’s sole and absolute discretion, Borrower shall not, directly or indirectly, voluntarily or involuntarily, cause, suffer or permit (a) any sale, conveyance, pledge, mortgage, hypothecation or other transfer of any legal or equitable interest in Borrower, the Property or any Collateral, or (b) any mortgage, pledge, encumbrance or lien (except to the extent of mechanic’s liens diligently contested in accordance with the Loan Documents) to be imposed upon or attached to the Property, the Collateral or any portion thereof (a “Disposition”). No transfer, conveyance, sale, lease or other Disposition shall relieve Borrower from personal liability for its obligations hereunder or under any Loan Document, whether or not the transferee assumes this Agreement.

 

7.14 Secondary Financing. Borrower shall not create, incur, assume or suffer to exist any material indebtedness, obligation for borrowed money, or other secondary financing (“Secondary Financing”) for which Borrower is liable or which is or is not secured by the Property or any Collateral other than (a) the Obligations arising under the Loan, (b) which may otherwise be owed to or hereafter borrowed from Lender, or (c) which may be permitted by Lender, which approval may be withheld in Lender’s sole and absolute discretion.

 

7.15 Contingent Liability. Borrower shall not assume, guarantee, endorse or otherwise knowingly become directly or contingently liable in connection with any obligation of any Person (other than Borrower), except (i) by endorsement of negotiable instruments for deposit or collection in the ordinary course of business, or (ii) by indemnity agreements given by Borrower to Title Company in connection with the title commitment or any endorsements.

 

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7.16 Performance of Lease Obligations. Borrower will perform promptly all of Borrower’s obligations under or in connection with each present and future lease of any part of the Property.

 

7.17 Approvals and Permits. Borrower will provide Lender with a copy of any Approval and Permit issued or renewed in the future by a Governmental Entity within thirty (30) calendar days after its issuance or renewal.

 

7.18 Use of Property. Unless required by applicable law, without the prior written consent of Lender, Borrower will not take any of the following actions:

 

(a) Allow changes in the use for which all or any part of the Property is being used at the time this Loan Agreement is executed.

 

(b) Initiate a change in the zoning classification of the Property or acquiesce to a change in the zoning classification of the Property.

 

(c) Combine all or any part of the Property with all or any part of a tax parcel which is not part of the Property.

 

(d) Subdivide or otherwise split any tax parcel constituting all or any part of the Property.

 

7.19 Further Assurances. Each Loan Party will at any time and from time to time upon request of Lender take or cause to be taken any action, execute, acknowledge, deliver or record any further documents, opinions, mortgages, security agreements, financing statements or other instruments or obtain such additional insurance as Lender in its reasonable discretion deems necessary or appropriate to carry out the purposes of this Agreement and to preserve, protect and perfect the security interests intended to be created and preserved in the Collateral, the Property, and other properties and assets securing the obligations of the Loan Parties under this Agreement and the Loan Documents.

 

ARTICLE 8
casualty and condemnation

 

8.1 Damage or Destruction.

 

(a) If the Improvements on the Property, or any part thereof, are damaged or destroyed by fire or any other cause, and Borrower shall desire to restore the Improvements or shall be required by Lender to restore the Improvements, Borrower shall, subject to the provisions of this Section, immediately proceed with the restoration thereof, and shall diligently complete the work of restoration, provided that Lender makes available to Borrower as restoration progresses any insurance proceeds actually paid to Lender in respect to such damage or destruction. If (i) in Lender’s reasonable judgment the insurance proceeds are sufficient to complete the restoration; and (ii) no Default exists under the Loan Documents (“Restoration Conditions”), Lender shall advance the insurance proceeds to Borrower as restoration progresses. If any one or more of the Restoration Conditions does not exist, Lender shall have no obligation to authorize further Advances on the Loan and may call the Loan immediately due and payable in accordance with the following paragraph; provided, however, if, in Lender’s reasonable judgment, the insurance proceeds are insufficient to complete the restoration, Borrower may, but is not required to, satisfy such condition by depositing with Lender such money as in Lender’s reasonable judgment is sufficient to complete the restoration in a timely manner and fully pay the costs thereof.

 

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(b) If in Lender’s reasonable judgment the Improvements cannot be restored in a timely manner as described above or, if Borrower does not or cannot deposit such money or additional money as in Lender’s reasonable judgment is required to complete the restoration and fully pay the cost thereof, or if a Default exists under the Loan Documents following the expiration of all applicable cure periods, such event shall be deemed an Event of Default hereunder, and Lender’s obligations to authorize further Advances on the Loan or to make insurance proceeds available for restoration shall immediately terminate. Lender may in such case apply any insurance proceeds to reduce the outstanding indebtedness of Borrower under the Loan, and may exercise any of the other remedies which are described in Section 9.2 hereof or in the Loan Documents.

 

(c) In the case of loss, Lender is hereby authorized to participate in any settlement or adjustment of claims under insurance policies, as its interest may appear, and to collect and receipt for any proceeds. In the event Lender elects to apply the proceeds to restoration, in keeping with the Restoration Conditions, such proceeds shall be made available, from time to time, under substantially similar terms and conditions as provided in this Agreement.

 

8.2 Condemnation.

 

(a) If all or any part of the Property is expropriated, condemned, taken by power of eminent domain, or transferred in anticipation of any such circumstances by any competent authority, then the proceeds of any such award or settlement made as compensation or damages for such expropriation, condemnation, exercise of the power of eminent domain or the transfer in anticipation of any such circumstance shall be paid to Lender. Lender, at its election, may pay or apply such amount in any one or more of the following ways and in such order as Lender shall determine:

 

(i) to costs of collection thereof;

 

(ii) payment of any expenses and fees of Lender associated with this Agreement and the other Obligations of Borrower hereunder, the payment of accrued and unpaid interest on the Loan, and the reduction of unpaid principal of the Loan;

 

(iii) to the payment of obligations incurred by Lender or Borrower in the repair or replacement of damage to the Improvements;

 

(iv) to make payment to Borrower for the costs of restoration and repair of the Improvements; or

 

(b) If the Improvements, or any part thereof, are taken by condemnation or subject to imminent threat of condemnation, Lender’s obligation to authorize further Advances on the Loan hereunder shall immediately terminate unless, in Lender’s reasonable judgment, the condemnation would not affect a material portion of the Property, or the Improvements affected by the condemnation can be replaced and restored in a manner which will enable the Improvements to be functionally and economically utilized and occupied as originally intended. Whether Lender, in its reasonable judgment, determines that the Improvements can be so restored and replaced or not, the rights and obligations of Lender and Borrower thereafter, and the handling and utilization of any condemnation proceeds actually paid to Lender shall be the same as described in the immediately preceding Section 8.1 hereof.

 

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ARTICLE 9
DEFAULT AND REMEDIES

 

9.1 Event of Default. The occurrence of any of the following events shall constitute an event of default hereunder (collectively, “Event of Default”):

 

(a) Borrower shall default in the payment of any principal or interest or any other monetary obligation owing to Lender under the terms of the Note, this Agreement or any other Loan Document.

 

(b) Borrower or Guarantor fails to comply with ARTICLE 6 or Sections 7.11, 7.12, 7.13, 7.14, 7.15, 7.16, 7.17, or 7.21.

 

(c) Except for Events of Default otherwise set forth in this Section, a default shall occur in the due performance and observance of any of the covenants and conditions of this Agreement or any other Loan Document which is not cured within any applicable cure period for such covenant or condition or, if no specific cure is provided, within thirty (30) calendar days of written notice of such default being sent by Lender to Borrower.

 

(d) Any written representation, warranty or disclosure made by Borrower or Guarantor proves to be materially false or misleading as of the date when made, whether or not such representation or disclosure appears in this Agreement, the Loan Documents, or items submitted by Borrower or Guarantor to Lender in connection therewith.

 

(e) There occurs any Material Adverse Occurrence.

 

(f) There occurs a failure of Restoration Conditions upon damage or destruction.

 

(g) Borrower shall cause, permit or suffer any Borrower Control Event, Disposition or Secondary Financing which is not permitted by the terms hereof or for which Borrower did not obtain Lender’s prior written consent (in Lender’s sole and absolute discretion).

 

(h) Rent payments from the Property or not remitted directly into the Deposit Account.

 

(i) Guarantor shall default on any covenant, term or agreement contained in the Guaranty and shall fail to cure such default within any cure period contained therein, if any.

 

(j) (i) The filing of a petition by Borrower or any Guarantor for relief under the Bankruptcy Code, or under any other present or future state or federal law regarding bankruptcy, reorganization or other debtor relief law; (ii) the filing of any pleading or an answer by Borrower or any Guarantor in any involuntary proceeding under the Bankruptcy Code or other debtor relief law which admits the jurisdiction of the court or the petition’s material allegations regarding Borrower’s insolvency; (iii) a general assignment by Borrower or any Guarantor for the benefit of creditors; (iv) Borrower or any Guarantor applying for, or the appointment of, a receiver, trustee, custodian or liquidator of Borrower or any Guarantor or any of its property; or (v) the Property is determined by a court of competent jurisdiction to constitute an asset of an estate of a debtor in bankruptcy.

 

(k) The failure of Borrower or any Guarantor to effect a full dismissal of any involuntary petition under the Bankruptcy Code or under any other debtor relief law that is filed against Borrower or any Guarantor or in any way restrains or limits Borrower, or any Guarantor, or Lender regarding the Loan or the Property, prior to the earlier of the entry of any court order granting relief sought in such involuntary petition, or thirty (30) calendar days after the date of filing of such involuntary petition.

 

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(l) If (i) any Guarantor who is a natural person shall die or become incapacitated, or (ii) any Guarantor that is an entity shall be dissolved or otherwise terminated.

 

(m) Borrower shall fail to provide or cause to be provided any insurance required under this Agreement.

 

Each Loan Party, for itself acknowledges and agrees that all material non-monetary defaults are conclusively deemed to be and are defaults which impair the security of the Loan Documents, and that Lender shall be entitled to exercise any appropriate remedy, including without limitation, foreclosure of the Loan Documents upon the occurrence of any such material non- monetary default after the expiration of any cure period, if applicable.

 

9.2 Remedies. Upon the occurrence of an Event of Default, Lender may, in addition to any and all other remedies which Lender may have under this Agreement, the Loan Documents or at law or in equity, at its option and without prior demand or notice, take any or all of the following actions:

 

(a) Immediately terminate any further Advances.

 

(b) Declare the Obligations under the Note immediately due and payable.

 

(c) Foreclose on or realize upon any security for the Loan without waiving its rights to proceed against any other security or other entities or individuals directly or indirectly responsible for repayment of the Obligations or waive any and all security for the Obligations as Lender may in its discretion so determine, and pursue any such other remedy or remedies as Lender may so determine to be in its best interest as provided herein or in the Loan Documents. All remedies of Lender provided for herein and in any other Loan Document are cumulative and shall be in addition to all other rights and remedies provided by law. The exercise of any right or remedy by Lender hereunder shall not in any way constitute a cure or waiver of default hereunder or under any other Loan Document or invalidate any act done pursuant to any notice of default, or prejudice Lender in the exercise of any of its rights hereunder or under any other Loan Documents unless, in the exercise of its rights, Lender realizes all amounts owed to it under such Loan Documents.

 

(d) Borrower hereby irrevocably authorizes Lender, at any time an Event of Default shall have occurred and be continuing, to set off any sum due to or incurred by Lender against all deposits and credits of Borrower held by Lender.

 

ARTICLE 10
MISCELLANEOUS

 

10.1 No Waiver. No waiver of any Default or breach by Borrower or Lender hereunder shall be implied from any failure by Lender or Borrower to take action on account of such default if such default persists or is repeated, and no express waiver shall affect any Default other than the default specified in the waiver and shall be operative only for the time and to the extent therein stated. Waivers of any covenant, term or condition contained herein shall not be construed as a waiver of any subsequent breach of the same covenant, term or condition. The consent or approval by Lender or Borrower to, or of, any act by Borrower or Lender requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to, or of, any subsequent similar act.

 

10.2 Successors and Assigns. This Agreement is made and entered into for the sole protection and benefit of Lender and Borrower, their successors and assigns, and no other person or persons shall have any right of action hereunder. The terms hereof shall inure to the benefit of the successors and assigns of the parties hereto; provided, however, that Borrower’s interest hereunder cannot be assigned or otherwise transferred without the prior consent of Lender.

 

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10.3 Notices. Any notice required or permitted to be given by Borrower or Lender under this Agreement shall be in writing and will be deemed given (a) upon personal delivery or upon confirmed transmission by facsimile, (b) on the first (1st) Business Day after receipted delivery to a courier service which guarantees next-business-day delivery, or (c) on the third (3rd) business day after mailing, by registered or certified United States mail, postage prepaid, in any case to the appropriate party at its address set forth below:

 

  If to Borrower: Linden Real Estate Holdings, LLC
    Attn: John “JT” Thatch
    1700 Coit Road, Suite 290
    Plano, Texas 75075
     
  If to Lender:   American Pacific Bancorp, Inc.
    Attn: Frank D. Heuszel   
    1400 Broadfield Street, Suite 100
    Houston, Texas 77084

 

10.4 Authority to File Notices. Borrower irrevocably appoints, designates and authorizes Lender as its agent (said agency being coupled with an interest) to send to any third party any other notice or documents or take any other action that Lender deems reasonably necessary or desirable to protect its interest hereunder, or under the Loan Documents, and will upon request by Lender, execute such additional documents as Lender may reasonably require to further evidence the grant of the aforesaid right to Lender.

 

10.5 Time. Time is of the essence hereof.

 

10.6 Amendments, Etc. No amendment, modification, termination or waiver of any provisions of this Agreement or of any of the Loan Documents nor consent to any departure by Lender or Borrower therefrom shall in any event be effective unless the same shall be in writing and signed by Lender and Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

10.7 Headings. The article and section headings in no way define, limit, extend or interpret the scope of this Agreement or of any particular article or section.

 

10.8 Number and Gender. When the context in which the words are used in this Agreement indicate that such is the intent, words in the singular number shall include the plural and vice versa. References to any one gender shall also include the other gender if applicable under the circumstances.

 

10.9 Validity. In the event that any provisions of this Agreement shall be held to be invalid, the same shall not affect in any respect whatsoever the validity of the remainder of this Agreement.

 

10.10 Governing Law Consent to Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah, without giving effect to Utah’s principles of conflicts of law. Borrower consents to the non-exclusive jurisdiction of state and federal courts located in both Utah and Salt Lake Counties, Utah and Harris County, Texas.

 

10.11 Survival of Warranties. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and of the Loan Documents and the extension of the Loan hereunder and continue in full force and effect until the Obligations of Borrower hereunder evidenced by the Note have been fully paid and satisfied.

 

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10.12 Automatic Acceleration. Should there occur a Default and if a petition under the United States Bankruptcy Code thereafter is filed by or against Borrower or any Guarantor while such event remains uncured and such petition is not dismissed within thirty (30) calendar days of filing, all obligations hereunder shall be automatically accelerated and due and payable and the default rate of interest provided for in the Note shall automatically apply as of the date of the first occurrence of the event which would, with the giving of notice, the passage of time, or both, constitute an Event of Default, without any notice, demand or action of any type on the part of Lender (including any action evidencing the acceleration or imposition of the default rate of interest). The fact that Lender has, prior to the filing of the voluntary petition under the United States Bankruptcy Code, acted in a manner which is inconsistent with the acceleration and imposition of the default rate of interest provided for in the Note, shall not constitute a waiver of this Section 10.12 or estop Lender from asserting or enforcing Lender’s rights hereunder.

 

10.13 Attorneys’ Fees and Other Costs. Borrower and Guarantor shall pay all reasonable expenses of Lender relating to the negotiation, drafting of documents, and documentation of the Loan, whether incurred in making the Loan or in future amendments or modifications to the Loan Documents. Further, Borrower and Guarantor shall reimburse Lender for all attorneys’ fees and expenses reasonably incurred by Lender in connection with the enforcement of Lender’s rights under this Agreement and each of the other Loan Documents, including, without limitation, reasonable attorneys’ fees and reimbursements for trial, appellate proceedings, out-of-court workouts and settlements and for enforcement of rights under any state or federal statute, including, without limitation, attorneys’ fees incurred in bankruptcy and insolvency proceedings such as in connection with seeking relief from stay in a bankruptcy proceeding or negotiating and documenting any amendment or modification of the Loan or reviewing subsequent Loan submission items. Borrower shall pay all costs, including without limitation costs of title searches, title commitments, appraisals, environmental audits, third-party consultants UCC searches incurred by Lender in enforcing payment and performance of the Loan, exercising rights and remedies of Lender under the Loan Documents, or reviewing Loan submission items. Borrower’s reimbursement obligation shall be part of the indebtedness evidenced and secured by the Loan Documents.

 

10.14 Severability; Titles. If any provision of this Agreement or of any other Loan Document securing or executed in connection with this Agreement is, for any reason and to any extent, invalid or unenforceable, then neither the remainder of the Loan Document in which such provision is contained, or the application of the provision to other persons, entities or circumstances, nor any other document referred to in this Agreement, shall be affected by such invalidity or unenforceability, and there shall be deemed substituted for the invalid unenforceable provision the most similar provision which would be valid and enforceable under applicable law.

 

10.15 Right to Participate or Assign Loan. Lender shall retain the right at all times, with or without Borrower’s or Guarantor’s consent, to grant participation in or to assign all of the Note or any portion thereof, together with the collateral for repayment of the Note, to any other entity acceptable to Lender, and Borrower (a) acknowledges that Lender has had and shall have the right to share any and all information concerning Borrower or Guarantor with any prospective loan participant or assignee and (b) Borrower shall cooperate with Lender in the event of any such assignment or participation and shall provide such information and take such actions as may be requested by Lender in accordance therewith.

 

10.16 No Marshaling. Each Loan Party, for itself and all who may claim through or under it, waive any and all right to have the property and estates comprising the Property marshaled upon any foreclosure of the lien and security interests of the Loan Documents and agrees that any court having jurisdiction to foreclose such lien may order the Property sold as an entirety.

 

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10.17 Joint and Several. The obligations of the undersigned as “Borrower” under this Agreement are joint and several.

 

10.18 WAIVER OF JURY TRIAL. BORROWER, AND BY LENDER’S ACCEPTANCE HEREOF, LENDER, HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE, THE LOAN AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COLLATERAL ARISING THEREFROM OR CONNECTED THERETO. BORROWER AND LENDER EACH REPRESENT TO THE OTHER THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY GIVEN.

 

10.19 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute the same document. Signature pages may be detached from the counterparts and attached to a single copy of this Agreement to physically form one document. Receipt by Lender of an executed copy of this Agreement by facsimile or electronic mail shall constitute conclusive evidence of execution and delivery of this Agreement by the signatory thereto.

 

10.20 U.S.A. Patriot Act Notification. The following notification is provided to Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318:

 

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit, or other financial services product. What this means for Borrower: when Borrower opens an account, if Borrower is an individual Lender will ask for Borrower’s name, taxpayer identification number, residential address, date of birth, and other information that will allow Lender to identify Borrower, and if Borrower is not an individual Lender will ask for Borrower’s name, taxpayer identification number, business address, and other information that will allow Lender to identify Borrower. Lender may also ask, if Borrower is an individual to see Borrower’s driver’s license or other identifying documents, and if Borrower is not an individual to see Borrower’s legal organizational documents or other identifying documents.

 

10.21 FINAL EXPRESSION. PURSUANT TO SECTION 25-5-4, UTAH CODE ANNOTATED, THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL EXPRESSION OF AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO THE LOAN AGREEMENT SHALL BE DETERMINED SOLELY FROM THE LOAN DOCUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO THE LOAN DOCUMENTS.

 

[Signature Pages Follow]

 

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WITNESS WHEREOF, Borrower and Lender have executed this Agreement as of the date first written above by and through their duly authorized representatives.

 

  BORROWER:
     
  LINDEN REAL ESTATE HOLDINGS, LLC
     
  By:
  Name: John “JT” Thatch
  Title: Manager
     
  LENDER:
     
  AMERICAN PACIFIC BANCORP, INC.
     
  By:
  Name:
  Title:

 

 

Guarantor acknowledges, consents, and agrees to be bound by the provisions, representations, warranties, and covenants applicable to the undersigned, including without limitation ARTICLE 5 Representations, Warranties and Covenants and ARTICLE 6 Financial Covenants of this Agreement as if made by the undersigned.

 

  SHARING SERVICES GLOBAL CORPORATION
     
  By:
  Name: John “JT” Thatch
  Title: Chief Executive Officer

 

** Signature Page to Loan Agreement**

 

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EXHIBIT A
LAND DESCRIPTION

 

The Land referred to herein below is situated in Utah County, State of Utah, and is described as follows:

 

Tax Parcel Nos. 47-254-0001 and 47-254-0002

 

Lots 1 & 2, PLAT ‘‘A’’, NOAH’S CENTER SUBDIVISION, Lindon, Utah, according to the official plat thereof on file in the office of the Recorder, Utah County, Utah, recorded March 27, 2006 as Entry No. 35802:2006.

 

 

 

 

Exhibit 10.12

 

After recording, return to:

 

American Pacific Bancorp, Inc.

1400 Broadfield, Suite 100

Houston, Texas 77084

Attention: Frank D. Heuszel

 

DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FINANCING STATEMENT

 

THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT (this “Deed of Trust”) is made as June __, 2022, by LINDEN REAL ESTATE HOLDINGS, LLC, a Texas limited liability company (“Borrower”), having an address of 1700 Coit Road, Suite 290, Plano, Texas 75075, in favor of Cottonwood Title Insurance Agency, Inc., having an address of 1996 E 6400 South, Salt Lake City, Utah 84121 (“Trustee”), for the benefit of American Pacific Bancorp, Inc., a Texas corporation, together with any legal holder of the Note (“Lender”), having an address of 1400 Broadfield, Suite 100, Houston, Texas 77084.

 

ARTICLE 1.

PARTIES, PROPERTY, AND DEFINITIONS

 

The following terms and references shall have the meanings indicated:

 

1.1 Note: The Demand Promissory Note of even date herewith, executed by Borrower, payable to the order of Lender in the principal amount of Five Million Six Hundred Eighty Seven Thousand Five Hundred US Dollars ($5,687,500.00), together with all renewals, extensions, and modifications of that promissory note.

 

1.2 Loan Agreement: The Loan Agreement (the “Loan Agreement”) of even date herewith executed by and between Borrower and the Lender, and all renewals, extensions, and modifications of the Loan Agreement. All capitalized terms not otherwise defined herein shall bear the meaning given to them in the Loan Agreement.

 

1.3 Real Property: The real property described in Exhibit A (the “Real Property”), attached hereto and by this reference incorporated herein, together with all right, title and interest of Borrower in the following with respect to the Real Property, whether now owned or hereafter acquired by Borrower:

 

(a) All improvements now or hereafter located on the Real Property and all easements and appurtenances thereto;

 

(b) The land lying within any street or roadway adjoining the Real Property; any vacated or hereafter vacated street or alley adjoining the Real Property; and any strips and gores adjoining the Real Property;

 

(c) All existing and future leases, subleases, subtenancies, licenses, occupancy agreements and concessions (“Leases”) relating to the use and enjoyment of all or any part of the premises and improvements located on the Real Property, and any and all guaranties and other agreements relating to or made in connection with any of such Leases.

 

 

 

 

(d) All and singular the passages, waters, water rights (whether tributary or non-tributary or not non-tributary), water courses, riparian rights, wells, well permits, water stock, other rights, liberties and privileges thereof or in any way now or hereafter appertaining to the Real Property, including homestead and any other claim at law or in equity, as well as any after-acquired title, franchise or license, and the reversion and reversions and remainder and remainders thereof;

 

(e) All machinery, apparatus, equipment, fittings, fixtures (whether actually or constructively attached or incorporated, and including all trade, domestic, and ornamental fixtures) now or hereafter located in, upon, or under the Real Property or improvements and used or usable in connection with any present or future operation thereof, including but not limited to all lighting, utility, and power equipment; engines; pipes; pumps; tanks; motors; conduits; utility systems, plumbing, lifting, cleaning, fire prevention, fire extinguishing, signage, heating, air-conditioning; communication apparatus; water heaters; ranges; furnaces; appliances, refrigerators, stoves; shades, awnings, screens, storm doors and windows; attached cabinets; rugs, carpets and draperies and all additions thereto and replacements therefor (but excluding all property not owned by Borrower, including property owned by tenants of Borrower);

 

1.4 Tangible Personal Property: All right, titles and interests of the Borrower in and to the following (the “Tangible Personal Property”):

 

(a) all goods, trade fixtures, fixtures, inventory, furnishings, fittings, machinery, apparatus, equipment, supplies, and other tangible personal property of every nature now owned or hereafter acquired by Borrower, together with all accessions thereto, replacements and substitutions therefor, and proceeds thereof, including, without limitation, all apparatus, machinery, motors, elevators, fittings, equipment, and other furnishings and all plumbing, heating, lighting, cooking, laundry, ventilating, refrigerating, incinerating, air-conditioning and sprinkler equipment, fixtures and appurtenances thereto (but excluding all property not owned by Borrower, including property owned by tenants of Borrower).

 

1.5 Intangible Personalty: All right, title and interest of the Borrower in and to the following (“Intangible Personalty”):

 

(a) all accounts, chattel paper, instruments, deposit accounts, letter of credit rights, investment property and general intangibles (including payment intangibles);

 

(b) all of the rents, royalties, income (including, without limitation, operating income), receipts, revenues, issues, and profits of and from the use, operation, or enjoyment of the Real Property and improvements (collectively, the “Income”), whether such Income is attributable to the period, or is collected, prior to or subsequent to any default by Borrower;

 

(c) all plans and specifications for the improvements on the Real Property; soil, environmental, engineering, land planning maps, surveys and other studies and reports concerning the Real Property or prepared for the orderly planning and development of the Real Property, including all plans, drawings and studies concerning the platting or replatting of the Real Property; all contracts and subcontracts relating to the improvements on the Real Property, or any thereof;

 

(d) all awards and payments, including interest thereon, resulting from the exercise of any right of eminent domain or any other public or private taking of, casualty or injury to, or decrease in the value of, any of the Real Property, including without limitation all property insurance payments, proceeds and policies related to the Real Property;

 

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(e) all of the licenses, permits, franchises, and other entitlements to use and all rights thereto which have been issued by or which are pending before any governmental or quasi-governmental agency which are necessary or appropriate for the Property;

 

(f) all funds, accounts, operating accounts, accounts receivable, deposit accounts, escrow accounts, monies, claims, causes of action, rights to payment, prepaid insurance and other prepaid items, contracts, contract rights, refunds and rebates, maintenance contracts, maintenance warranties, continuing agreements, security deposits, general intangibles and payment intangibles associated with the Property, and insurance proceeds;

 

(g) all water taps, sewer taps, building permits, curb cut permits, storm water discharge permits, refunds, rebates or deposits due or to become due from any utility companies or governmental entity;

 

(h) the absolute right to Borrower’s interest in any trade name used by Borrower in connection with the Property and all of Borrower’s rights in and to contract rights, leases, concessions, trade names, trademarks, service marks, logos, operating systems, trade secrets, technology and technical information, copyrights, warranties, licenses, plans, drawings and other items of intangible personal property relating to the ownership or operation of the Property; and

 

(i) all other and greater rights and interests of every nature in such property and in the possession or use thereof and income therefrom, whether now owned or subsequently acquired by Borrower.

 

1.6 Property: The Real Property, the Tangible Personal Property and the Intangible Personalty are sometimes collectively called the “Property.” It is specifically understood that the enumeration of any specific articles of the Property, including Tangible Personal Property and Intangible Personalty shall not exclude or be held to exclude any items of property not specifically mentioned.

 

Any capitalized terms not otherwise defined in Sections 1.3 through 1.6 of this Deed of Trust and not defined in the Loan Agreement, shall bear the meaning given to them in Article 9 of the Code, defined below.

 

1.7 Secured Obligations: The Property is granted and shall be held for the purpose of securing (the “Secured Obligations”):

 

(a) The payment of the indebtedness as evidenced in the Note, which provides for future advances in accordance with the terms of the Loan Agreement;

 

(b) The performance and observance of all terms, covenants, conditions, and provisions to be performed or observed by the Borrower pursuant to the terms of:

 

(i) this Deed of Trust;

 

(ii) the Loan Agreement; and

 

(iii) any and all pledge or other security agreements, loan agreements, disbursement agreements, assignments (both present and collateral), side letters, as the same may be amended, modified or supplemented from time to time, being referred to hereinafter as “Related Agreements.” The Note, this Deed of Trust, Related Agreements, Loan Agreement, and any and all other documents or instruments executed in connection with the foregoing to evidence or secure the Note shall be hereinafter collectively called the “Loan Documents”.

 

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(c) All amounts expended or advanced by Lender for the protection of its security, the enforcement of any Loan Document, or for any other reason permitted by the Loan Documents or applicable law.

 

1.8 Guaranties and Unsecured Environmental Indemnities. Notwithstanding anything in this Deed of Trust or other Loan Document to the contrary, this Deed of Trust shall not secure any guaranty or unsecured environmental indemnity.

 

ARTICLE 2.

GRANTING CLAUSE

 

2.1 Grant to Trustee. As security for the Secured Obligations, Borrower irrevocably and unconditionally grants, bargains, sells, and conveys to Trustee, in trust, for the benefit of Lender, WITH POWER OF SALE and right of entry and possession wherever located, whether now owned or hereafter acquired or arising, and, except as indicated, in and to the Property.

 

2.2 Security Interest to Lender. As additional security for the Secured Obligations, Borrower hereby grants to Lender a security interest in the Tangible Personal Property and in the Intangible Personalty and in such of the Real Property as may be deemed personalty (collectively, the “Collateral”). To the extent any of the Collateral may be or has been acquired with funds advanced by Lender under the Loan Documents, this security interest is a purchase money security interest. This Deed of Trust constitutes a Security Agreement under the Uniform Commercial Code of Utah (the “Code”) with respect to any part of the Property and Collateral that may or might now or hereafter be or be deemed to be personal property, fixtures or property other than real estate; all of the terms, provisions, conditions and agreements contained in this Deed of Trust pertain and apply to the Collateral as fully and to the same extent as to any other property comprising the Property, and the following provisions of this section shall not limit the generality or applicability of any other provision of this Deed of Trust but shall be in addition thereto:

 

(a) The Collateral shall be used by Borrower solely for business purposes, being installed upon or owned in connection with the real estate comprising part of the Property for Borrower’s own use or as the equipment and furnishings furnished by Borrower, as owner, to tenants of the Property;

 

(b) The Tangible Personal Property shall be kept at the real estate comprising a part of the Property, and shall not be removed therefrom without the consent of Lender and the Tangible Personal Property may be affixed to such real estate but shall not be affixed to any other real estate;

 

(c) No financing statement covering any of the Collateral or any proceeds thereof is on file in any public office; and Borrower will, at its cost and expense, upon demand, furnish to Lender such further information and will execute and deliver to Lender such financing statements and other documents in form satisfactory to Lender and will do all such acts and things as Lender may at any time or from time to time reasonably request or as may be necessary or appropriate to establish and maintain a perfected security interest in the Collateral as security for the Secured Obligations, subject to no adverse liens or encumbrances; and Borrower will pay the cost of filing the same or filing or recording such financing statements or other documents and this instrument in all public offices wherever filing or recording is deemed by Lender to be necessary or desirable;

 

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(d) The terms and provisions contained in this section and in Section 7.5 (Enforcement of Security Interests) of this Deed of Trust shall, unless the context otherwise requires, have the meanings and be construed as provided in the Code; and

 

(e) This Deed of Trust constitutes a security agreement and financing statement under the Code with respect to the Collateral. As such, this Deed of Trust covers all items of the Collateral that are personal property including all items which are to become fixtures. Borrower is the “Debtor” and Lender is the “Secured Party” (as those terms are defined and used in the Code) insofar as this Deed of Trust constitutes a financing statement.

 

(f) The Borrower agrees that Lender may, to the extent permitted by applicable law, prepare and file financing statements, amendments thereto, and continuation statements without the signature of the Borrower and file any financing statement, amendment thereto or continuation statement electronically.

 

ARTICLE 3.

BORROWER’S TITLE AND AUTHORITY

 

3.1 Warranty of Title. Borrower represents and warrants to Lender that Borrower has good and marketable title to the Property in fee simple absolute, subject only to the lien of general taxes for the current year and those additional matters, if any, set forth in the title insurance policy issued to Lender insuring this Deed of Trust (“Permitted Exceptions”). Borrower further represents and warrants to Lender that Borrower is the absolute owner of the Collateral, free of any liens, encumbrances, security interests, and other claims whatsoever, except insofar as the Collateral may be encumbered by the lien of general taxes for the current year which are not yet due and payable. Borrower, for itself and its successors and assigns, hereby agrees to warrant and forever defend, all and singular, all of the Property and property interest granted and conveyed pursuant to this Deed of Trust, against every person whomsoever lawfully claiming, or to claim, the same or any part thereof, subject to the Permitted Exceptions. The warranties contained in this section shall survive foreclosure of this Deed of Trust, and shall inure to the benefit of and be enforceable by any person who may acquire title to the Property or the Collateral pursuant to any such foreclosure.

 

3.2 Waiver of Homestead and Other Exemptions. To the extent permitted by law, Borrower hereby waives all rights to any homestead or other exemption to which Borrower would otherwise be entitled under any present or future constitutional, statutory, or other provision of applicable state or federal law.

 

3.3 Due Authorization. If Borrower is other than a natural person, then each individual who executes this document on behalf of Borrower represents and warrants to Lender that such execution has been duly authorized by all necessary corporate, partnership, or other action on the part of Borrower.

 

ARTICLE 4.

BORROWER’S AFFIRMATIVE COVENANTS

 

4.1 Payment of Note. Borrower will pay all principal, interest, and other sums payable under the Note, the Loan Agreement or this Deed of Trust or the Loan Documents, on the date when such payments are due, without notice or demand.

 

4.2 Performance of Other Obligations. Borrower will promptly and strictly perform and comply with all other covenants, conditions, and prohibitions required of Borrower by the terms of the Loan Documents.

 

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4.3 Payment of Taxes.

 

(a) Property Taxes. Borrower will pay, before delinquency, all taxes and assessments, including without limitation, general, special and metropolitan district taxes, water charges, sewer service charges (collectively, the “Impositions”), which may be levied or imposed at any time against Borrower’s interest and estate in the Property or the Collateral. Within ten (10) days after request by Lender, Borrower will deliver to Lender an official receipt for such payment or other evidence that such payment has been made.

 

(b) Deposit for Taxes. Upon the occurrence of and during a monetary Event of Default that remains uncured or a failure to pay taxes, after applicable cure periods and at Lender’s option and election, Borrower shall deposit with Lender an amount equal to 1/12th of the amount which Lender estimates will be required to make the next annual payment of Impositions, multiplied by the number of whole and partial months which have elapsed in the current year. After such election, with each monthly payment under the Note, Borrower will deposit with Lender an amount equal to 1/12th of the amount which Lender estimates will be required to pay the next required installment or payment of Impositions. The purpose of these provisions is to provide Lender with sufficient funds on hand to pay all such Imposition charges thirty (30) days before the date on which they become past due. Provided no default exists hereunder or under any Loan Document, Lender will apply the amounts so deposited to the payment of such Imposition when due, but in no event will Lender be liable for any interest on any amount so deposited, and the money so received may be held and commingled with Lender’s own funds. If the funds so deposited are insufficient to pay the Impositions for any year when the same shall become due and payable, the Borrower shall, within ten (10) days after receipt of written demand therefor, deposit such additional funds as may be necessary to pay such Impositions in full.

 

(c) Intangible Taxes. If by reason of any statutory or constitutional amendment or judicial decision adopted or rendered after the date hereof, any tax, assessment, or similar charge is imposed against the Note, against Lender arising directly from Lender’s interests in the Loan Documents (other than a tax based on Lender’s income), or against any security interest of Lender in the Property, Borrower will pay such tax, assessment, or other charge before delinquency and will indemnify Lender against all loss, expense, or diminution of income in connection therewith. In the event Borrower is unable to do so, either for economic reasons or because the legal provisions or decisions creating such tax, assessment or charge forbid Borrower from doing so, then the Note will, at Lender’s option, become due and payable in full upon thirty (30) days’ notice to Borrower.

 

(d) Right to Contest. Notwithstanding any other provision of this section, Borrower will not be deemed to be in default solely by reason of Borrower’s failure to pay any Impositions so long as, in Lender’s reasonable judgment, each of the following conditions is satisfied:

 

(i) Borrower is engaged in and diligently pursuing in good faith administrative or judicial proceedings appropriate to contest the validity or amount of such Impositions; and

 

(ii) Nonpayment of such Impositions will not result in the loss or forfeiture of any Property encumbered hereby or any interest of Lender therein.

 

If Lender determines that any one or more of such conditions is not satisfied or is no longer satisfied, Borrower will pay the Impositions in question, together with any interest and penalties thereon, within ten (10) days after Lender gives notice of such determination.

 

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4.4 Maintenance of Insurance. Borrower shall provide and maintain policies of insurance on the Property in accordance with the Loan Agreement.

 

(a) Deposit for Premiums. Upon the occurrence of and during a monetary Event of Default that remains uncured or a failure to pay insurance premiums, after applicable cure periods and at Lender’s option and election, Borrower shall deposit with Lender an amount equal to 1/12th of the amount which Lender estimates will be required to make the next annual payments of the premium for the policies of insurance referred to in this section, multiplied by the number of whole and partial months which have elapsed since the most recent policy anniversary date for each such policy (“Insurance Premium”). After such election, with each monthly payment under the Note, Borrower will deposit an amount equal to 1/12th of the amount which Lender estimates will be required to pay the next required annual premium for each insurance policy referred to in this section. The purpose of these provisions is to provide Lender with sufficient funds on hand to pay all such Insurance Premiums thirty (30) days before the date on which they become past due. Borrower shall, within ten (10) days after receipt of demand therefor, deposit such additional funds as are necessary to make up any deficiencies in amounts necessary to pay such Insurance Premiums when due. Provided no default exists hereunder or under any Loan Document, Lender will apply the amounts so deposited to the payment of such Insurance Premiums when due, but in no event will Lender be liable for any interest on any amount so deposited, and the money so received may be held and commingled with Lender’s own funds.

 

(b) Renewal Policies. Not less than thirty (30) days prior to the expiration date of each insurance policy required pursuant to subsection 4.4(a) above, Borrower will deliver to Lender a copy of an appropriate renewal policy certified by Borrower as complete and accurate, together with evidence satisfactory to Lender that the applicable premium has been prepaid.

 

(c) Application of Hazard Insurance Proceeds. Any insurance proceeds received as a consequence of casualty shall be applied in accordance with the terms of the Loan Agreement.

 

(d) Successor’s Rights. Any person who acquires title to the Property or the Collateral upon foreclosure hereunder will succeed to all of Borrower’s rights under all policies of insurance maintained pursuant to this section, including, without limitation, all rights to all claims under all such insurance policies regardless of the nature of such claim or when such claim arose.

 

4.5 Maintenance and Repair of Property and Collateral. Borrower will at all times maintain the Property and the Collateral in good condition and repair, and will diligently prosecute the completion of any infrastructure, building or other improvement which is at any time in the process of construction on the Property in full compliance with all building codes and other governmental requirements and in accordance with the Loan Agreement. Borrower shall constantly maintain and shall not diminish in any respect nor materially alter the Property during the term of this Deed of Trust except as contemplated by the Plans (as defined in the Loan Agreement), and except as required by law or municipal ordinance, without the prior written consent of Lender. Borrower will promptly repair, restore, replace, or rebuild any part of the Property or the Collateral which may be affected by any casualty or any public or private taking or injury to the Property or the Collateral. Any repair, restoration, replacement, or rebuilding shall be consistent with all applicable laws and regulations and the Loan Agreement. All costs and expenses arising out of the foregoing shall be paid by Borrower whether or not the proceeds of any insurance or eminent domain shall be sufficient therefor. Borrower will comply with all statutes, ordinances, and other governmental or quasi-governmental requirements and private covenants relating to the ownership, construction, use, or operation of the Property and the Collateral. Lender and any person authorized by Lender may enter and inspect the Property at all reasonable times, and may inspect the Collateral, wherever located, at all reasonable times.

 

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4.6 Performance of Lease Obligations. Borrower will perform promptly all of Borrower’s obligations under or in connection with the Leases.

 

4.7 Management. The Borrower will provide and maintain good and efficient management of the Property satisfactory to Lender.

 

4.8 Condemnation. Borrower hereby assigns, transfers and sets over unto Lender the entire proceeds of any award or any claim for damages for any of the Property taken or damaged under the power of eminent domain or by condemnation. Notwithstanding the foregoing, proceeds of any condemnation award shall be applied in accordance with the terms of the Loan Agreement.

 

4.9 Mechanics’ Liens.

 

(a) Borrower shall timely comply with all requirements of Utah law with respect to filings and notices related to mechanics or materialmen liens. Borrower shall provide to Lender copies of all notices related to mechanics or materialmen liens filed by any party with respect to the Property.

 

(b) Borrower shall pay and promptly discharge, at Borrower’s cost and expense, all liens, encumbrances and charges upon the Property (except Permitted Exceptions), or any part thereof or interest therein whether inferior or superior to this Deed of Trust and keep and maintain the same free from the claim of all persons supplying labor, services or materials that will be used in connection with or enter into the construction of any and all buildings or improvements now being erected or that hereafter may be erected on the Property regardless of by whom such services, labor or materials may have been contracted unless otherwise authorized in writing by Lender.

 

(c) If Borrower shall fail to remove and discharge any such lien, encumbrance or charge to the extent required in Section 4.9(b) above, or if Borrower shall dispute the amount thereof in contravention of the requirements hereof, then, in addition to any other right or remedy of Lender, Lender may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by procuring the release of the Property from the effect of such lien, encumbrance or charge. Borrower shall, immediately upon demand therefor by Lender, pay to Lender an amount equal to all costs and expenses incurred by Lender in connection with the exercise by Lender of the foregoing right to discharge any such lien, encumbrance or charge, including costs of any bond or additional security, together with interest thereon from the date of such expenditure at the interest rate in effect in the Note, plus costs and attorneys’ fees.

 

4.10 Defense of Actions. Borrower will defend, at Borrower’s expense, any action, proceeding or claim which affects any Property encumbered hereby or any interest of Lender in such Property or in the Secured Obligations, and will indemnify and hold Lender harmless from all loss, damage, cost, or expense, including reasonable attorneys’ fees, which Lender may incur in connection therewith except to the extent such loss is caused by Lender’s gross negligence or intentional acts.

 

4.11 Inventories; Assembly of Tangible Personal Property. Borrower will, from time to time at the request of Lender, supply Lender with a current inventory of the Tangible Personal Property, in such detail as Lender may require. Upon the occurrence of any Event of Default hereunder, Borrower will, at Lender’s request assemble the Tangible Personal Property and make the Tangible Personal Property available to Lender at any place designated by Lender which is reasonably convenient to both parties.

 

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4.12 Further Assurances; Estoppel Certificates. Borrower will execute and deliver to Lender upon demand, and pay the costs of preparation and recording thereof, any further documents which Lender may request to confirm or perfect the liens and security interests created or intended to be created hereby, or to confirm or perfect any evidence of the Secured Obligations. Borrower will also, within ten (10) days after any request by Lender, deliver to Lender a signed and acknowledged statement certifying to Lender, or to any proposed transferee of the Secured Obligations, (a) the balance of principal, interest, and other sums then outstanding under the Note, and (b) whether Borrower claims to have any offsets or defenses with respect to the Secured Obligations and, if so, the nature of such offsets or defenses.

 

4.13 Parking Requirements. Borrower shall maintain at all times sufficient parking spaces to comply with the parking requirements of all Leases, zoning and other regulations affecting the Property.

 

4.14 Financial Statements and Inspection of Records. Borrower, at Borrower’s expense, shall furnish to Lender the financial and other reports required by the Loan Agreement.

 

4.15 Security Deposits. If required by the Lender, Borrower shall keep and maintain in a separate bank account with Lender, any security deposits or advance payments received from tenants in lieu of security deposits. Upon the Lender’s request, the Lender shall be named on the bank account and no funds shall be withdrawn therefrom without the prior written consent of the Lender.

 

4.16 Off-Set. All sums payable by Borrower under this Deed of Trust shall (unless otherwise specifically provided in this Deed of Trust) be paid without notice, demand, counterclaim, set-off, deduction or defense and without abatement, suspension, deferment, diminution or reduction. The obligations and liabilities of Borrower hereunder shall in no way be released, discharged or otherwise affected (except as expressly provided herein) by reason of: (a) any damage to or destruction of, or any condemnation or similar taking of the Property or any part thereof; (b) any restriction or prevention of or interference with any use of the Property or any part thereof; (c) any title defect or encumbrance or any eviction from the Property or any part thereof by title paramount or otherwise; (d) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Lender, or any action taken with respect to this Deed of Trust by any trustee or receiver of Lender, or by any court, in any such proceeding; (e) any claim which Borrower has or might have against Lender; (f) any default or failure on the part of Lender to perform or comply with any of the terms, covenants or conditions of this Deed of Trust or of any other agreement with Borrower; or (g) any other occurrence whatsoever, whether similar or dissimilar to the foregoing.

 

ARTICLE 5.

BORROWER’S NEGATIVE COVENANTS

 

5.1 Waste. Borrower will not commit or permit any waste with respect to the Property or the Collateral.

 

5.2 Zoning and Private Covenants. Except as specifically provided in the Loan Agreement, if at all, Borrower will not initiate, join in, or consent to any change in any zoning ordinance or classification, any change in the “zone lot” or “zone lots” (or similar zoning unit or units) presently comprising the Property, any change in any private restrictive covenant, or any change in any other public or private restriction limiting or defining the uses which may be made of the Property or any part thereof, without the express written consent of Lender. If under applicable zoning provisions the use of all or any part of the Property is or becomes a nonconforming use, Borrower will not cause such use to be discontinued or abandoned without the express written consent of Lender.

 

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5.3 Disposition of Property or Beneficial Interest in Borrower. Borrower shall not cause or permit a Disposition or Borrower Control Event, except as provided in the Loan Agreement.

 

5.4 Transfer or Removal of Tangible Personal Property. Borrower will not sell, transfer or remove from the Real Property all or any material part of the Tangible Personal Property, unless the items sold, transferred, or removed are simultaneously replaced with similar items of equal or greater value.

 

5.5 Further Encumbrance of Collateral. Borrower will not create or permit any financing encumbered by the Property.

 

5.6 Change in Name, Location of Collateral, Etc. Without giving at least thirty (30) days’ prior written notice to Lender, the Borrower shall not: (a) change its name, identity structure, or jurisdiction of organization; (b) change the location of its place of business (or chief executive office if more than one place of business); or (c) add to or change any location at which any of the Collateral is stored, held or located, without first notifying Lender of Borrower’s intention to do so and shall execute and deliver to Lender modifications or supplements of this Deed of Trust (and to any financing statement which may be filed in connection herewith) as Lender may require.

 

5.7 Improper Use of Property or Collateral. Borrower will not use the Property or the Collateral for any purpose or in any manner, or take any action with respect to the Property which violates any applicable law, ordinance, or other governmental requirement, the requirements or conditions of any insurance policy, or any private covenant.

 

ARTICLE 6.

EVENTS OF DEFAULT

 

Each of the following events will constitute a default (an “Event of Default”) under this Deed of Trust and under each of the other Loan Documents:

 

6.1 Failure to Pay. Default shall be made in the payment of any installment of principal or interest on the Note or any other sum under the Loan Documents when due (after giving consideration to any grace period which may be applicable under such document).

 

6.2 Other Event of Default. The occurrence of an Event of Default under the Loan Agreement.

 

6.3 Superior Lien Against the Property. The assertion of any claim of priority over this Deed of Trust, by title, lien, or otherwise in any legal, administrative, or equitable proceeding, unless such assertion be withdrawn, or effective action satisfactory to Lender commenced (and thereafter diligently prosecuted) and Lender is secured against any loss or damage therefrom, within sixty (60) days of the assertion of such claim.

 

6.4 Abandonment. The actual or constructive abandonment of all or a substantial portion of the Property or the Collateral (such abandonment constituting an assignment to Lender, at Lender’s option, of Borrower’s interest in any lease or contract now or hereafter affecting the abandoned property).

 

6.5 Judgment. A writ of execution or attachment or any similar process shall be issued or levied against all or any part of or interest in the Property or a material part of the Collateral, or any judgment involving monetary damages shall be entered against Borrower, guarantor, or any other maker of the Note which shall become a lien on the Property or any portion thereof or interest therein and such execution, attachment, or similar process or judgment is not released, bonded, satisfied, vacated, or stayed within sixty (60) days after its entry or levy.

 

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ARTICLE 7.

LENDER’S REMEDIES

 

Immediately upon or any time after the occurrence of any Event of Default hereunder, Lender may exercise any remedy available at law or in equity, including but not limited to those listed below and those listed in the other Loan Documents, in such sequence or combination as Lender may determine in Lender’s sole discretion:

 

7.1 Performance of Defaulted Obligations. Lender may make any payment or perform any other obligation under the Loan Documents which Borrower has failed to make or perform, and Borrower hereby irrevocably appoints Lender as the true and lawful attorney-in-fact for Borrower to make any such payment and perform any such obligation in the name of Borrower, which appointment is coupled with Lender’s interest in the Property and the Collateral. All payments made and expenses (including attorneys’ fees and legal assistant’s fees) incurred by Lender in this connection, together with interest thereon at the Default Rate, as set forth in the Note, from the date paid or incurred until repaid, will be part of the Secured Obligations and will be immediately due and payable by Borrower to Lender.

 

7.2 Specific Performance and Injunctive Relief. Notwithstanding the availability of legal remedies, Lender will be entitled to obtain specific performance, mandatory or prohibitory injunctive relief, or other equitable relief requiring Borrower to cure or refrain from repeating any default.

 

7.3 Acceleration of Secured Obligations. Lender may, without notice or demand, declare all of the Secured Obligations immediately due and payable in full.

 

7.4 Possession of Property. Lender may enter and take possession of the Property without seeking or obtaining the appointment of a receiver, may employ a managing agent for the Property.

 

7.5 Enforcement of Security Interests. Lender may exercise all rights of a secured party under the Code with respect to the Collateral, including but not limited to taking possession of, holding, and selling the Collateral and enforcing or otherwise realizing upon any accounts and general intangibles. Any requirement for reasonable notice of the time and place of any public sale, or of the time after which any private sale or other disposition is to be made, will be satisfied by Lender’s giving of such notice to Borrower at least fifteen (15) days prior to the time of any public sale or the time after which any private sale or other intended disposition is to be made. Lender shall have all of the rights which Utah law accords the holder of real and personal property security for an obligation to conduct separate foreclosures, or a “unified” foreclosure, of some or all of its “mixed” real and personal property security.

 

7.6 Foreclosure Against Property. Lender may foreclose this Deed of Trust, insofar as it encumbers the Property, either by judicial action or through a trustee foreclosure sale through the Trustee in the manner provided by statute.

 

(a) If this Deed of Trust encumbers more than one parcel of real estate, foreclosure may be by separate parcel or lot or en masse, as Lender may elect in its sole discretion. Foreclosure through Trustee will be initiated by Lender’s filing of its demand for sale with Trustee. If the power of sale is invoked, Trustee will execute a written notice of the occurrence of an Event of Default and of Lender’s election to cause the Property to be sold and will record such notice in each county in which the Property is located. Lender or Trustee will mail notice of default in the manner provided by the laws of Utah to Borrower and to such other persons as the laws of Utah prescribe. Trustee will give public notice of sale and will sell the Property according to the laws of Utah. Trustee may sell the Property at the time and place and under the terms designated in the notice of sale in one or more parcels. Trustee may postpone sale of all or any part of the Property by public announcement at the time and place of any previously scheduled sale. Lender or Lender’s designee may purchase the Property at any sale. Instead of paying cash for such Property, Lender may settle for the purchase price by crediting the sales price of the Property against the Secured Obligations. Within a reasonable time after the sale, Trustee will deliver to the purchaser at the sale, a deed conveying the Property so sold without any covenant or warranty, express or implied. The recitals in Trustee’s deed will be prima facie evidence of the truth of the statements made therein.

 

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(b) All reasonable fees, costs and expenses of any kind incurred by the Trustee or Lender in connection with, or preparation for, foreclosure of this Deed of Trust, including, without limitation, the costs of any appraisals, engineering or environmental testing and evaluations of the Property obtained by Lender, all costs of any receivership for the Property advanced by Lender, and all attorneys’, legal assistants’ and consultants’ fees, expert’s evidence, stenographer’s charges, publication costs, (which may be estimated as to items to be expended after foreclosure sale or entry of the decree) costs of procuring all such title commitments, title searches, title insurance policies, and similar data with respect to title as Lender may deem reasonably necessary either to prosecute such suit or to evidence to bidders at any sale the true condition of title to or value of the Property, incurred by Lender, shall constitute a part of the Secured Obligations and may be included as part of the amount owing from Borrower to Lender at any foreclosure sale. All expenditures and expenses of the nature in this paragraph mentioned, and such expenses and fees as may be incurred in the protection of the Property and the maintenance of the lien of this Deed of Trust, including the reasonable fees of any attorney employed by Lender in any litigation or proceeding affecting this Deed of Trust, the Note or the Property, including probate, bankruptcy proceedings, proceedings to obtain a receiver, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding, shall be immediately due and payable by Borrower, with interest thereon at the Default Rate, as more particularly defined in the Note and shall be secured by this Deed of Trust.

 

(c) The proceeds of any sale under this section shall be applied first to the fees and expenses of the Trustee and Lender incurred in connection with the sale, and then to the reduction or discharge of the Secured Obligations; any surplus remaining shall be paid over to Borrower or to such other person or persons as may be lawfully entitled to such surplus.

 

(d) Nothing in this section dealing with foreclosure procedures or specifying particular actions to be taken by Lender or by Trustee or any person conducting the foreclosure sale shall be deemed to contradict or add to the requirements and procedures now or hereafter specified by Utah law, and any such inconsistency shall be resolved in favor of Utah law applicable at the time of foreclosure.

 

7.7 Appointment of Receiver. Lender shall be entitled, as a matter of absolute right and without regard to the value of any security for the Secured Obligations or the solvency of any person liable therefor, to the appointment of a receiver (a “Receiver”) for the Property, the Leases, and the Rents and Revenues upon ex parte application to any court of competent jurisdiction, without notice. Borrower hereby expressly waives any right to a hearing or notice of a hearing prior to the appointment of a Receiver. Borrower waives any requirement or necessity of the posting of a receiver’s bond.

 

7.8 Authority of Receiver. Should a Receiver be appointed to take possession of the Property, such Receiver shall be authorized and empowered to generally do anything which Borrower could legally do if Borrower were in possession of the Property, such additional powers and authority as may be set forth in any order appointing the Receiver, and, without limitation, the Receiver shall be specifically authorized as follows:

 

(a) To take possession of the Property, Leases, and Rents and Revenues and any business conducted by Borrower or any other person thereon and any business assets used in connection therewith and any Collateral in which Lender has a security interest granted by Borrower and, if the Receiver deems it appropriate, to operate the same;

 

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(b) To exclude Borrower and Borrower’s agents, servants, and employees from the Property;

 

(c) With or without taking possession of the Property, to collect the Rents and Revenues, including those past due and unpaid and security deposits;

 

(d) To rent, lease or let all or any portion of the Property to any party or parties at such rental and upon such terms as Receiver shall determine, and to pay any leasing or rental commissions associated therewith;

 

(e) To market and sell the Property or any portion thereof;

 

(f) To complete any construction, improvements, maintenance or development which may be in progress;

 

(g) To undertake such repairs and alterations of the Property as Receiver may deem necessary or beneficial to preserve and protect the Property;

 

(h) To use all stores of materials, supplies and maintenance equipment on the Property and to replace and replenish such items at the expense of the receivership estate;

 

(i) To pay the operating expenses of the Property, including costs of management and leasing or marketing thereof (which shall include lease commissions, sale commissions), payments under contracts and agreements for development and construction;

 

(j) To pay all taxes and assessments against the Property and any property which is collateral for the Secured Obligations, all premiums for insurance thereon, all utility and other operating expenses, and all sums due under any prior or subsequent encumbrance;

 

(k) To borrow from the Lender such funds as may be reasonably necessary to the effective exercise of the Receiver’s powers, on such terms as may be agreed upon by Receiver and Lender; and

 

(l) All expenses incurred by Receiver or Receiver’s agents shall constitute part of the Secured Obligations. Any revenues collected by Receiver shall be applied in accordance with the order appointing the Receiver. The risk of accidental loss, damage or casualty to the Property is assumed and undertaken by Borrower and, except for Lender’s or Receiver’s gross negligence or intentional misconduct, Lender and Receiver shall have no liability whatsoever for decline in value or loss of the Property.

 

7.9 Further Assurances. Upon issuance of a deed or deeds pursuant to foreclosure of this Deed of Trust, all right, title, and interest of the Borrower in and to the Leases shall, by virtue of this instrument, thereupon vest in and become the absolute property of the grantee or grantees in such deed or deeds without any further act or assignment by the Borrower. Borrower hereby agrees to execute all instruments of assignment or further assurance in favor of such grantee or grantees in such deed or deeds, as may be necessary or desirable for such purpose. But nothing contained herein shall prevent Lender from terminating any subordinated Lease not approved by the Lender through such foreclosure.

 

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7.10 Lifting of Automatic Stay. In the event that Borrower is the subject of any insolvency, bankruptcy, receivership, dissolution, reorganization or similar proceeding, federal or state, voluntary or involuntary, under any present or future law or act, Lender is and shall be irrevocably entitled to the automatic and absolute lifting of any automatic stay as to the enforcement of its remedies under the Loan Documents against the security for the Secured Obligations, including specifically the stay imposed by Section 362 of the United States Federal Bankruptcy Code, as amended. Borrower hereby consents to the immediate lifting of any such automatic stay, and specifically and expressly covenants and agrees not to contest any motion by Lender to lift such stay. Borrower expressly acknowledges and represents to Lender that the security for the Secured Obligations is not now and will never be necessary to any plan of reorganization of any type.

 

7.11 Possession of the Property. Upon the occurrence and during the continuance of any Event of Default hereunder and the acceleration of the indebtedness secured hereby or any portion thereof, Borrower, if an occupant of any unit or space in the Property or any part thereof, upon demand of Lender or Receiver, shall immediately surrender possession of the Property (or the portion thereof so occupied) to Lender or Receiver, and if Borrower is permitted to remain in possession of such unit, the possession shall be as a month to month tenant of Lender or Receiver and, on demand, Borrower shall pay to Lender or Receiver monthly, in advance, a reasonable rental for the space so occupied and in default thereof Borrower may be dispossessed. The covenants herein contained may be enforced by Lender or Receiver. Nothing in this Section shall be deemed to be a waiver of the provisions of this Deed of Trust making the transfer of the Property or any part thereof in violation of the Loan Documents without Lender’s prior written consent an Event of Default.

 

ARTICLE 8.

ASSIGNMENT OF LEASES, RENTS AND REVENUES

 

8.1 Assignment of Rents and Revenues. To further secure the Secured Obligations, Borrower does hereby sell, assign and transfer unto the Lender all rents, issues, profits, revenue, and income now due and which may hereafter become due under or by virtue of any Leases, including all of Borrower’s rights to any security deposits, earnest money deposits or any other forms of rent, revenue or proceeds of the foregoing (collectively “Rents and Revenues”), whether written or verbal, or any letting of, or of any agreement for the sale, use or occupancy of the Property or any part thereof, and all proceeds from, evidence of, and benefits and advantages to be derived therefrom, now or hereafter existing, whether or not with the Lender’s approval. The Borrower does hereby appoint irrevocably the Lender its true and lawful attorney in its name and stead (with or without taking possession of the Property) to rent, lease or let any improvements located on the Property, upon such terms as said Lender shall, in its discretion, determine, and to collect all of said Rents and Revenues arising from or accruing at any time hereafter, and all now due or that may hereafter become due under each and every of the Leases, or other agreements, written or verbal, or which may hereafter exist on the Property, on the condition that Lender hereby grants to Borrower a license to collect and retain such Rents and Revenues (but expressly not including the right to collect any rents more than one (1) month in advance or any amount to prepay, terminate, or “buy out” any Leases) so long as no Event of Default exists under the Loan Documents. Borrower expressly covenants to apply the Rents and Revenue received, after application for operating expenses permitted hereunder, to payment of the Secured Obligations as and when the same become due and in compliance with the Loan Documents. Such license shall be revocable by Lender upon notice to Borrower at any time after an Event of Default under the Loan Documents, and immediately upon any such revocation, Lender shall be entitled to receive, and Borrower shall deliver to Lender, any and all Rents and Revenues theretofore collected by Borrower which remain in the possession or control of Borrower and all Leases, and other such agreements. It is the intention of the Borrower to create and grant, and it is the intention of Lender to create and receive, a present and absolute assignment of all of the Leases, similar agreements, Rents and Revenues now due or which may hereafter become due, but it is agreed that the Lender’s right to collect the Rents and Revenues is conditioned upon the existence of an Event of Default under the Loan Documents. Failure of Lender at any time or from time to time to enforce its rights under this ARTICLE 8 shall not in any manner prevent its subsequent enforcement, and Lender is not obligated to collect anything hereunder, but is accountable only for sums collected. Nothing contained herein shall be construed as constituting the Lender a mortgagee in possession in the absence of the taking of actual possession of the Property by the Lender. In the exercise of the powers herein granted to the Lender, no liability shall be asserted or enforced against the Lender, all such liability being expressly waived and released by Borrower. Lender shall have all rights and remedies under the Utah Uniform Assignment of Rent Act.

 

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8.2 Covenants Regarding Leases. Borrower agrees:

 

(a) Not to collect any of the Rents for more than two (2) months in advance of the time when the same become due under the terms thereof;

 

(b) Not to discount any future accruing Rents;

 

(c) Not to execute any other assignments of said Leases or any interest therein or any of the Rents and Revenues thereunder;

 

(d) That notwithstanding any variation of the terms of the Deed of Trust or any extension of time for payment thereunder or any release of part or parts of the Property, the Leases, Rents and Revenues hereby assigned, insofar as they relate to the unreleased Property, shall continue as additional security in accordance with the terms hereof;

 

(e) To hold and account for all downpayment or earnest money deposits in the manner provided for under any state or local laws or ordinances applicable to the Property or under the Loan Documents; and

 

(f) To perform all of the Borrower’s covenants and agreements under the Leases and not to suffer or permit to occur any release of liability of the lessees or purchasers.

 

8.3 Representations Regarding Leases. Borrower represents and warrants, as of the date hereof, (a) that the Leases and the Rents and Revenues thereunder have not been heretofore sold, assigned, transferred, or set over by Borrower or by any person or persons whatsoever; (b) that no material default exists on the part of the lessees thereunder or the Borrower as lessor; (c) that no Rents have been paid by any of the lessees for more than four (4) months in advance; (d) that the payment of none of the rents have been or, will be waived, released, reduced, discounted or otherwise discharged or compromised by the Borrower directly or indirectly by assuming any lessee’s obligations with respect to other premises; and (e) Borrower has good right to sell, assign, transfer, and set over the same and to grant to and confer upon Lender the rights, interests, powers, and authorities herein granted and conferred.

 

8.4 Further Assignments. Borrower shall give Lender at any time upon demand any further or additional forms of assignment of transfer of such Rents and Revenues, leases and security as may be reasonably requested by Lender, and shall deliver to Lender executed copies of all such leases and security.

 

8.5 Authority of Lender. Any tenants or occupants of any part of the Property are hereby authorized to recognize the claims of Lender hereunder without investigating the reason for any action taken by Lender, or the validity or the amount of indebtedness owing to Lender, or the existence of a Default or Event of Default under any Loan Document, or the application to be made by Lender of any amounts to be paid to Lender. The sole signature of Lender or a receiver shall be sufficient for the exercise of any rights under this ARTICLE 8 and the sole receipt of Lender or a receiver for any sums received shall be a full discharge and release therefor to any such tenant or occupant of the Property; and Borrower hereby releases each such tenant and occupant or purchaser which makes payments to Lender under this ARTICLE 8 from any liability under the applicable Lease or occupancy agreement. Checks for all or any part of the rentals collected under this ARTICLE 8 shall be drawn to the exclusive order of Lender or such receiver.

 

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8.6 Indemnification of Lender. Nothing herein contained shall be deemed to obligate Lender to perform or discharge any obligation, duty, or liability of lessor under any Lease of the Property, and Borrower shall and does hereby indemnify and hold Lender harmless from any and all liability, loss, or damage which Lender may or might incur under any Lease of the Property or by reason of this assignment; and any and all such liability, loss, or damage incurred by Lender, together with the costs and expenses, including reasonable attorneys’ fees, incurred by Lender in defense of any claims or demands therefor (whether successful or not), shall be additional Secured Obligations, and Borrower shall reimburse Lender therefor on demand.

 

8.7 Severability and Survival. The provisions of this ARTICLE 8 shall survive the foreclosure of the lien of this Deed of Trust and the exercise of the power of sale granted under this Deed of Trust until the expiration of all periods of redemption following any such foreclosure or sale and thereafter with respect to all Rents and Revenues arising prior to or attributable to the period prior to the expiration of all such redemption periods.

 

ARTICLE 9.

MISCELLANEOUS PROVISIONS

 

9.1 Time of the Essence. Time is of the essence with respect to all provisions of this Deed of Trust.

 

9.2 Rights and Remedies Cumulative. Lender’s rights and remedies under each of the Loan Documents are cumulative of the rights and remedies available to Lender under each of the other Loan Documents and those otherwise available to Lender at law or in equity. No act of Lender shall be construed as an election to proceed under any particular provision of any Loan Document to the exclusion of any other provision in the same or any other Loan Document, or as an election of remedies to the exclusion of any other remedy which may then or thereafter be available to Lender.

 

9.3 No Implied Waivers. Lender shall not be deemed to have waived any provision of this Deed of Trust unless such waiver is in writing and is signed by Lender. Without limiting the generality of the preceding sentence, neither Lender’s acceptance of any payment with knowledge of a default by Borrower, nor any failure by Lender to exercise any remedy following a default by Borrower shall be deemed a waiver of such default, and no waiver by Lender of any particular default on the part of Borrower shall be deemed a waiver of any other default or of any similar default in the future.

 

9.4 No Third Party Rights. No person shall be a third party beneficiary of any provision of this Deed of Trust. All provisions of this Deed of Trust favoring Lender are intended solely for the benefit of Lender, and no third party shall be entitled to assume or expect that Lender will or will not waive or consent to modification of any such provision in Lender’s sole discretion.

 

9.5 Preservation of Liability and Priority. Without affecting the liability of Borrower or of any other person (except a person expressly released in writing) for payment and performance of all of the Secured Obligations, and without affecting the rights of Lender with respect to any security not expressly released in writing, and without impairing in any way the priority of this Deed of Trust over the interests of any person acquired or first evidenced by recording subsequent to the recording hereof, Lender may, either before or after the maturity of the Note, and without notice or consent: (a) release any person liable for payment or performance of all or any part of the Secured Obligations; (b) make any agreement altering the terms of payment or performance of all or any of the Secured Obligations; (c) exercise or refrain from exercising, or waive, any right or remedy which Lender may have under any of the Loan Documents; (d) accept additional security of any kind for any of the Secured Obligations; or (e) release or otherwise deal with any real or personal property securing the Secured Obligations. Any person acquiring or recording evidence of any interest of any nature in the Property or the Collateral shall be deemed, by acquiring such interest or recording any evidence thereof, to have agreed and consented to any or all such actions by Lender.

 

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9.6 Subrogation of Lender. Lender shall be subrogated to the lien of any previous encumbrance discharged with funds advanced by Lender under the Loan Documents, regardless of whether such previous encumbrance has been released of record.

 

9.7 Notices. Any notice required or permitted to be given by Borrower or Lender under this Deed of Trust shall be in writing and shall be given in accordance with the terms of the Loan Agreement. Borrower requests that any notice of default and notice of sale be mailed to Borrower, addressed as follows:

 

Linden Real Estate Holdings, LLC

Attn: John “JT” Thatch

1700 Coit Road, Suite 290

Plano, Texas 75075

 

9.8 Release. Upon payment and performance in full of all the Secured Obligations and all costs of releasing this Deed of Trust, Lender will execute and deliver to Borrower such documents as may be required to release this Deed of Trust of record.

 

9.9 Illegality. If any provision of this Deed of Trust is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Deed of Trust, the legality, validity, and enforceability of the remaining provisions of this Deed of Trust shall not be affected thereby, and in lieu of each such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Deed of Trust a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. If the rights and liens created by this Deed of Trust shall be invalid or unenforceable as to any part of the Secured Obligations, then the unsecured portion of the Secured Obligations shall be completely paid prior to the payment of the remaining and secured portion of the Secured Obligations, and all payments made on the Secured Obligations shall be considered to have been paid on and applied first to the complete payment of the unsecured portion of the Secured Obligations.

 

9.10 Successors in Interest. This Deed of Trust is binding upon Borrower and Borrower’s successors and assigns, including all grantees and remote grantees of any interest of Borrower in the Property, and shall inure to the benefit of Lender, and its successors and assigns, and the provisions hereof shall likewise be covenants running with the land. However, this Section 9.10 does not waive the provisions of this Deed of Trust or the Loan Agreement that restrict transfers of Borrower’s interest in the Property.

 

9.11 Joint and Several. The obligations of the undersigned as Borrower under this Deed of Trust are joint and several.

 

9.12 Governing Law. The laws of the State of Utah shall govern the validity, construction, enforcement, and interpretation of this Deed of Trust, without regard to principles of conflicts of laws.

 

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9.13 Notice and Cure Periods. All notice and cure periods provided in this Deed of Trust or any other Loan Document shall run concurrently with any notice or cure periods provided by law. Without limiting the foregoing, Lender shall be entitled to exercise its remedies under this Deed of Trust if any event occurs that, with the giving of notice or the passage of time, or both, would constitute an Event of Default hereunder or would otherwise entitle Lender to accelerate any or all of the Obligations.

 

9.14 Survival. This Deed of Trust shall survive foreclosure of the liens created hereby, to the extent necessary to fulfill its purposes.

 

9.15 Captions. The captions and headings of various paragraphs of this Deed of Trust are for convenience only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof.

 

9.16 Counterparts. This Deed of Trust may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute the same document.

 

9.17 JURY TRIAL WAIVER. AS PERMITTED BY APPLICABLE LAW, BORROWER KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ITS RIGHTS TO A TRIAL BEFORE A JURY IN CONNECTION WITH THIS DEED OF TRUST. BORROWER ACKNOWLEDGES THAT THE RIGHT TO TRIAL BY JURY IS AN IMPORTANT RIGHT, AND THAT BORROWER WAIVES SUCH RIGHT FREELY AND KNOWINGLY, HAVING HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL OF ITS CHOOSING REGARDING THIS JURY TRIAL WAIVER AND THIS DEED OF TRUST.

 

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Signed and delivered as of the date first mentioned above.

 

  BORROWER:
   
  LINDEN REAL ESTATE HOLDINGS, LLC
   
  By:  
  Name: John “JT” Thatch
  Title: Manager

 

STATE OF ______________   )

: ss.

COUNTY OF _____________ )

 

On this _____ day of June, 2022, before me a Notary Public, personally appeared John “JT” Thatch, known to me to be the manager of Linden Real Estate Holdings, LLC, a Texas limited liability company, who executed the within instrument on behalf of said company therein named, and acknowledged to me that said company executed the same.

 

                                                                
  NOTARY PUBLIC
   
  Residing in:                                        

 

  My commission expires:                 

 

**Signature Page to Deed of Trust**

 

 

 

 

EXHIBIT A

PROPERTY

 

The Land referred to herein below is situated in Utah County, State of Utah, and is described as follows:

 

Tax Parcel Nos. 47-254-0001 and 47-254-0002

 

Lots 1 & 2, PLAT ‘‘A’’, NOAH’S CENTER SUBDIVISION, Lindon, Utah, according to the official plat thereof on file in the office of the Recorder, Utah County, Utah, recorded March 27, 2006 as Entry No. 35802:2006.

 

 

 

Exhibit 10.13

 

DEMAND PROMISSORY NOTE

 

$5,687,500.00 June __, 2022

 

FOR VALUE RECEIVED, the undersigned, (“Borrower”), promises to pay ON DEMAND to the order of AMERICAN PACIFIC BANCORP, INC., a Texas corporation (“Lender”) at 1400 Broadfield, Suite 100, Houston, Texas 77084, or at such other place as Lender may, from time to time designate in writing, the principal sum of Five Million Six Hundred Eighty Seven Thousand Five Hundred US Dollars ($5,687,500.00), together with interest thereon payable as specified in this Demand Promissory Note (this “Note”). Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Loan Agreement (defined below).

 

1. Interest Rate. Interest on the outstanding principal under the Loan shall accrue at the fixed rate of 8.0% per annum.

 

2. Interest Calculation. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

 

3. Payments and Maturity Date. Principal and interest shall be payable ON DEMAND, but if demand is not made, principal and interest shall be payable as follows:

 

(a) Monthly payments of principal and interest in the amount of Forty Three Thousand Eight Hundred Ninety Seven and 05/100 US Dollars ($43,897.05) shall be made beginning on July 1, 2022 and continuing on the same date of each month thereafter;

 

(b) The entire outstanding principal balance of this Note, together with all accrued and unpaid interest thereon computed as aforesaid and any other sums due under the Loan shall become due and payable, without offset and without further notice, on June 1, 2024.

 

4. Prepayments. Borrower may prepay principal without fee or penalty. All prepayments of principal shall be applied to scheduled installments of principal in the inverse order of their maturities.

 

5. Default and Acceleration. Without limiting Lender’s right to make demand for full payment, upon the occurrence of an Event of Default as defined in the Loan Agreement, at the option of the holder hereof, the entire debt then remaining unpaid at once shall become due and payable without notice and the liens given to secure the payment of this Note may be foreclosed and Lender may pursue all rights and remedies available under this Note or any instrument securing payment of this Note.

 

6. Default Rate of Interest. Upon the occurrence of an Event of Default, Borrower promises to pay interest on the principal balance of this Note together with all sums due and owing under the Note or the Loan Documents then outstanding at 18.0% per annum a rate of interest (“Default Rate”). Failure to require interest at the Default Rate or charge such increased interest shall not be a waiver of the right to do so at any future time or with respect to any other default.

 

7. Late Charge. With the exception of such amounts which are due upon the Loan Maturity Date, in the event any payment of principal, interest, or other sum due in connection with the Loan is not made within fifteen (15) days after the due date, Lender may, at its option, require the payment of a late charge in the amount of five percent (5.0%) of the delinquent sum (“Late Charge”). Borrower acknowledges that Lender will incur extra expenses for the handling of the delinquent payment and servicing the indebtedness evidenced hereby, and that the exact amount of these extra expenses is extremely difficult and impractical to ascertain, but that the Late Charge would be a fair approximation of the expense so incurred by Lender.

 

 
 

 

8. Remedies Cumulative. The rights or remedies of Lender as provided in this Note and any instrument securing payment of this Note shall be cumulative and concurrent and may be pursued singly, successively, or together against Borrower and the real property described in the Loan Documents, and any other funds, property or security held by Lender for the payment hereof or otherwise at the sole discretion of Lender. The failure to exercise any such right or remedy shall in no event be construed as a waiver or release of such rights or remedies or the right to exercise them at any later time.

 

9. Forbearance. Any forbearance of Lender in exercising any right or remedy hereunder or under the Loan Documents, or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of any right or remedy. The acceptance by Lender of payment of any sum payable hereunder after the due date of such payment shall not be a waiver of Lender’s right to either require prompt payment when due of all other sums payable hereunder or to declare a default for failure to make prompt payment. Lender shall at all times have the right to proceed against any portion of the security held for this Note in such order and in such manner as Lender may deem fit, without waiving any rights with respect to any other security. No delay or omission on the part of Lender in exercising any right hereunder shall operate as a waiver of such right or of any other right under this Note.

 

10. Right of Setoff. In addition to all liens upon, and the rights of setoff against, the monies, securities and other property of Borrower given to the Lender, the Lender shall have a security interest in, and a right of setoff against, all of Borrower’s deposit accounts at Lender, all monies, securities and other property of Borrower, now or hereafter in the possession of the Lender, whether for safekeeping or otherwise. Upon the occurrence of an Event of Default and the expiration of all applicable cure periods, the Lender shall have the immediate right without notice to take amounts due from any deposit balances Borrower has with the Lender, regardless of any penalty that may apply when the Lender exercises such right, and apply such amounts for the outstanding balance of amounts due under this Note.

 

11. Application of Payments. All payments made on this Note shall be applied first to costs and late fees, then to the payment of the interest then accrued, and then to outstanding principal. In the circumstance of an Event of Default, payments may be applied in any order chosen by Lender.

 

12. Borrower’s Waivers. Borrower and any sureties, guarantors and endorsers (severally each called a “Surety”) waive presentment, protest and demand, notice of protest, demand and of dishonor and non-payment of this Note, and expressly agree that this Note, or any payment hereunder, may be extended from time to time without in any way affecting the liability of Borrower and each Surety hereof. Borrower and any Surety further agree that at any time and from time to time without notice the terms of payment herein may be modified or the security described in the Loan Documents released in whole or in part, or increased, changed or exchanged by agreement between Lender and any owner of the property affected by said Loan Documents without affecting the liability of any party to this instrument or any person liable or to become liable with respect to any indebtedness evidenced hereby.

 

13. Usury. Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law.

 

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14. Loan Documents. This Note is executed by Borrower in connection with that certain Loan Agreement made by and between Borrower and Lender dated as of the date hereof (the “Loan Agreement”), and this Note is secured by the Collateral. As used herein, the term “Obligations” shall mean those obligations of Borrower as evidenced by this Note, the Loan Agreement, and the Loan Documents. The Loan Agreement and the Deed of Trust contain provisions for the acceleration of the maturity of this Note. In the event of any conflict between any provision of the Loan Agreement and any provision of this Note, the provision of the Loan Agreement shall control.

 

15. Preferential Payment. Borrower agrees that to the extent Borrower or any Surety makes any payment to Lender in connection with the indebtedness evidenced by this Note, and all or any part of such payment is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid by Lender or paid over to a trustee, receiver or any other entity, whether under any bankruptcy act or otherwise (any such payment is hereinafter referred to as a “Preferential Payment”), then the indebtedness of Borrower under this Note shall continue or shall be reinstated, as the case may be, and, to the extent of such payment or repayment by Lender, the indebtedness evidenced by this Note or part thereof intended to be satisfied by such Preferential Payment shall be revived and continued in full force and effect as if said Preferential Payment had not been made.

 

16. Governing Law; Jurisdiction. This Note is to be governed according to the laws of Utah, without giving effect to principles of conflict of laws. Without limiting the right of Lender to bring any action or proceeding against Borrower or any Surety or against any property of Borrower or any Surety (an “Action”) arising out of or relating to this Note or any indebtedness evidenced hereby in the courts of other jurisdictions, including without limitation state and federal courts in Harris County, Texas, Borrower and each Surety hereby irrevocably submit to the jurisdiction, process and venue of any Utah State or Federal court sitting in the State of Utah, and hereby irrevocably agree that any Action may be heard and determined in such Utah State court or in such Federal court. Borrower and all Sureties each hereby irrevocably waives, to the fullest extent it may effectively do so, the defenses of lack of jurisdiction over any person, inconvenient forum or improper venue, to the maintenance of any Action in any jurisdiction.

 

17. Binding Effect. This Note shall be binding upon Borrower and its successors and assigns and shall inure to the benefit of Lender, and any subsequent holders of this Note, and their successors and assigns.

 

18. Notice. All notices required or permitted in connection with this Note shall be given at the place and in the manner provided in the Loan Agreement for the giving of notices.

 

19. Business Purpose; Time. The undersigned hereby represents that the proceeds of the Loan evidenced by this Note will be used for a commercial or business purpose. Time is of the essence with regard to the performance of the obligations of Borrower in this Note and each and every term, covenant and condition herein by or applicable to Borrower.

 

20. Attorneys’ Fees. Borrower further promises to pay all reasonable attorneys’ fees incurred by Lender in connection with any Default hereunder and in any proceeding brought to enforce any of the provisions of this Note both before and after judgment.

 

21. Interpretation and Incorporation. As used in this Note, the term “Lender,” shall include each subsequent transferee and/or owner of this Note, whether taking by endorsement or otherwise. As used in this Note, the word “include(s)” means “include(s), without limitation,” and the word “including” means “including, but not limited to.”

 

WAIVER OF JURY TRIAL. BORROWER, AND BY LENDER’S ACCEPTANCE HEREOF, LENDER, HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE, THE LOAN AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COLLATERAL ARISING THEREFROM OR CONNECTED THERETO. BORROWER AND LENDER EACH REPRESENT TO THE OTHER THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY GIVEN.

 

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3
 

 

IN WITNESS WHEREOF, Borrower has duly executed this Demand Promissory Note as of the day and year first above written.

 

  BORROWER:
   
 

LINDEN REAL ESTATE HOLDINGS, LLC,

a Texas limited liability company

     
  By:  
  Name: John “JT” Thatch
  Title: Manager

 

**Signature Page to Demand Promissory Note**

 

 

 

 

Exhibit 21.1

 

SHARING SERVICES GLOBAL CORPORATION
LIST OF SUBSIDIARIES

 

Sharing Services Global Corporation

 

Elepreneurs Canada, ULC (Canada)
Elevacity Ventures, LLC (Texas)
Elevacity Holdings, LLC (Texas)
Elevacity U.S., LLC (Texas)
Elevacity Global Canada, ULC (Canada)
Global Product Innovations, LLC (Texas)
Global Travel Destinations, LLC (Texas)
Product Innovations Affiliates, LLC (Texas)
Product Solutions International, LLC (Texas)
SHRG Development Ventures, LLC (Texas)
SHRG IP Holdings, LLC (Texas)
SHRG International Holdings, LLC (Texas)
SHRG North America Acquisitions, LLC (Texas)
SHRG Real Estate Holdings, LLC (Texas)
Linden Real Estate Holdings, LLC (Texas)
Elevacity International Holdings, LLC (Texas)
SHRG Asia Partners Pte. Limited (Singapore)
Elevacity Global Australia PTY LTD (Australia)
Elevacity Global NZ Limited (New Zealand)
Elepreneurs Asia Limited (Hong Kong)
Elepreneurs Asia Pte. Limited (Singapore)
Partners Happy Pte. Limited (Singapore)
The Happy Co. Korea Limited (South Korea)
HAPI International Limited (Hong Kong)
HAPI Group Limited (Hong Kong)
HAPPY International DMCC (Dubai)
Four Oceans Holdings, Inc (Nevada)
Elenergy, LLC (Inactive)
Imagine University, LLC (Inactive)
Legacy Direct Global LLC (Inactive)
Total Travel Media, Inc. (Inactive)

 

Note: All entities shown above are direct or indirect wholly owned subsidiaries of the Registrant.

 

 

 

 

Exhibit 31.1 

 

CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, John Thatch, certify that:

 

(1) I have reviewed this Annual Report on Form 10-K of Sharing Services Global Corporation;

 

(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 officer 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: June 20, 2022

 

  By: /s/ John Thatch
    John Thatch
    Chief Executive Officer

 

 

 

 

Exhibit 31.2

 

CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Anthony S. Chan, certify that:

 

(1) I have reviewed this Annual Report on Form 10-K of Sharing Services Global Corporation;

 

(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 officer 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: June 20, 2022

 

  By: /s/ Anthony S. Chan
    Anthony S. Chan
   

Chief Financial Officer

 

 

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report on Form 10-K of Sharing Services Global Corporation (the “Company”) for the fiscal year ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Thatch, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §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 result of operations of the Company.

 

  By: /s/ John Thatch
    John Thatch
    Chief Executive Officer

 

Date: June 20, 2022

 

 

 

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report on Form 10-K of Sharing Services Global Corporation (the “Company”) for the fiscal year ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony S. Chan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §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 result of operations of the Company.

 

  By: /s/ Anthony S. Chan
    Anthony S. Chan
    Chief Financial Officer

 

Date: June 20, 2022