UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JanuaryJuly 31, 2018
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-205310
SHARING SERVICES, INC.
(Exact name of registrant as specified in its charter)
Nevada | 30-0869786 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1700 Coit Rd.,Road, Suite 100, Plano, Texas 75075
(Address (Address of principal executive offices)(Zip (Zip Code)
(714) 203-6717(469) 304-9400
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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.
(X) Yes (_)☒ No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). (_) yes (X)Yes ☐ No☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or emerging growth company. See the definitions of “large“large accelerated filer,” “accelerated filer”“accelerated filer,” “smaller reporting company,” and “smaller reporting company”“emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
(Do not check if a 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 Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (_)Yes (X)☐ No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court
(_)Yes (_) No
APPLICABLE ONLY TO CORPORATE ISSUERS:☒
As of March 23,September 12, 2018, there were 54,860,00057,084,000 shares of the issuer’s class A common stock issued and outstanding and 10,000,000 shares of the issuer’s class B common stock issued and outstanding.
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TABLE of CONTENTS
2
In this Quarterly Report, references to “the Company,” “Sharing Services,” “our company,” “we,” “our,” “ours” and “us” refer to Sharing Services, Inc. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report and in any documents incorporated by reference herein which are not purely historical facts, 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, which we refer to as the Exchange Act. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or similar expressions may also identify such forward-looking statements.
Readers are cautioned not to place undue reliance on forward-looking statements since such statements speak only as of the date they were made. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including, but not limited to, risks and uncertainties related to:
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The success of our growth initiatives, including our efforts to attract consumers;
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Anticipating and effectively responding to changes in consumer preferences and buying trends in a timely manner;
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The timing and acceptance of new products we introduce;
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Our ability to efficiently manage and control our operating costs;
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If we continue to incur losses from operations and are unable to generate sufficient cash from operations to fund our working capital needs, including servicing our debt;
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Our dependence on and ability to obtain additional financing to implement our business strategies;
·
Changes in interest rates increasing the cost of servicing our debt and obtaining additional debt;
·
Our ability to attract and retain key personalities to promote our products;
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The inability of a key personality to successfully perform his/her role to promote our products;
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The existence of negative publicity surrounding a key personality engaged in promoting our products;
·
Our dependence on three suppliers for substantially all the products we sell and the possibility of material interruptions in the supply of products by those suppliers or increases in the prices of the products we purchase from those suppliers;
·
The highly competitive and dynamic nature of the direct selling industry;
·
Our compliance with current laws and regulations or becoming subject to new or more stringent laws and regulations in the future;
·
Products sold by us being found to be defective in labeling or content;
·
Our success in identifying acquisition candidates, completing desirable acquisitions and integrating acquired businesses;
·
The success of our initiatives to expand into new geographies, including international areas;
·
The challenges of conducting business outside the United States, including foreign currency risks associated with operating in international areas;
·
The success of our efforts to register our trademarks and protecting our intellectual property rights;
·
The risk that our products may infringe on the intellectual property rights of others; and
·
Our success in developing our information technology systems and our financial controls.
The events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. As a result, our actual results may differ materially from the results contemplated by these forward-looking statements. We assume no obligation to publicly update or revise any forward-looking statements.
3
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
The following condensed consolidated balance sheets as of July 31, 2018 and April 30, 2018, and the condensed consolidated statements of earnings, condensed consolidated statements of comprehensive income and condensed consolidated statements of cash flows for the three months ended July 31, 2018 and for the period from May 5, 2017 (inception) to July 31, 2017 are those of Sharing Services, Inc. and subsidiaries.
SHARING SERVICES, INC.
Index to the Unaudited InterimCondensed Consolidated Financial Statements
For the Period from May 5, 2017 (Inception)Three Months Ended to JanuaryJuly 31, 2018
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4
SHARING SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)SHEETS
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ASSETS |
| July 31, 2018 (Unaudited) |
| April 30, 2018
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Current Assets |
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| Cash and cash equivalents | $ | 785,554 | $ | 768,268 | ||||||||
| Accounts receivable |
| 1,699,505 |
| 1,556,472 | ||||||||
| Notes receivable |
| 275,000 |
| 275,000 | ||||||||
| Inventory |
| 857,859 |
| 236,335 | ||||||||
| Other current assets |
| 437,777 |
| 145,636 | ||||||||
Total Current Assets |
| 4,055,695 |
| 2,981,711 | |||||||||
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Security deposits |
| 41,920 |
| 21,055 | |||||||||
Property and equipment, net |
| 253,842 |
| 118,465 | |||||||||
Investments in unconsolidated entities |
| 4,007,188 |
| 2,757,188 | |||||||||
| TOTAL ASSETS | $ | 8,358,645 | $ | 5,878,419 | ||||||||
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
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Current Liabilities |
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| Accounts payable | $ | 786,662 | $ | 525,075 | ||||||||
| Accrued and other current liabilities |
| 4,045,362 |
| 3,619,608 | ||||||||
| Due to related parties |
| 4,799 |
| 4,799 | ||||||||
| Current portion of convertible notes payable, net of unamortized debt discount of $770,617 and $772,398 |
| 480,383 |
| 247,602 | ||||||||
| Derivative liabilities |
| 31,066,441 |
| 30,488,655 | ||||||||
Total Current Liabilities |
| 36,383,647 |
| 34,885,739 | |||||||||
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Convertible notes payable, net of unamortized debt discount of $41,908 and $44,427 |
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| 8,092 |
| 5,573 | ||||||||
| TOTAL LIABILITIES |
| 36,391,739 |
| 34,891,312 | ||||||||
Commitments and contingencies |
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Stockholders' Deficit |
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Preferred stock, $0.0001 par value, 200,000,000 shares authorized: |
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| Series A convertible preferred stock, $0.0001 par value, 100,000,000 shares designated; 91,694,540 and 86,694,540 shares issued and outstanding as of July 31, 2018 and April 30, 2018, respectively |
| 9,169 |
| 8,669 | ||||||||
| Series B convertible preferred stock, $0.0001 par value, 10,000,000 shares designated; 10,000,000 shares issued and outstanding |
| 1,000 |
| 1,000 | ||||||||
| Series C convertible preferred stock, $0.0001 par value, 10,000,000 shares designated; 3,950,000 shares issued and outstanding |
| 395 |
| 395 | ||||||||
Common Stock, $0.0001 par value, 500,000,000 Class A shares authorized, 56,770,000 shares and 56,170,000 shares issued and outstanding as of July 31, 2018 and April 30, 2018, respectively |
| 5,677 |
| 5,617 | |||||||||
Common Stock, $0.0001 par value, 10,000,000 Class B shares authorized, 10,000,000 shares issued and outstanding |
| 1,000 |
| 1,000 | |||||||||
Additional paid in capital |
| 26,596,079 |
| 25,423,589 | |||||||||
Shares to be issued |
| 94,500 |
| 196,500 | |||||||||
Stock subscriptions receivable |
| (114,405) |
| (114,405) | |||||||||
Accumulated deficit |
| (54,626,509) |
| (54,535,258) | |||||||||
Total Stockholders' Deficit |
| (28,033,094) |
| (29,012,893) | |||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 8,358,645 | $ | 5,878,419 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
SHARING SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
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| Date of Inception |
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| January 31, |
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| 2018 |
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Revenues | $ | 960,182 | $ | 960,182 | |
Cost of sales |
| 673,551 |
| 673,551 | |
Gross profit |
| 286,631 |
| 286,631 | |
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Operating Expenses |
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| General and administration |
| 194,201 |
| 288,971 |
| Marketing expenses |
| - |
| 694,207 |
| Stock based compensation |
| - |
| 1,308,948 |
| Professional |
| 117,882 |
| 151,554 |
| Total operating expenses |
| 312,083 |
| 2,443,680 |
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Operating loss |
| (25,452) |
| (2,157,049) | |
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Other income (expense) |
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| Interest expense |
| (118,229) |
| (241,424) |
| Change in fair value of derivative liability |
| (3,455,374) |
| (4,577,965) |
| Total other expense |
| (3,573,603) |
| (4,819,389) |
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Net loss | $ | (3,599,055) | $ | (6,976,438) | |
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Basic and dilutive loss per common share | $ | (0.06) | $ | (0.12) | |
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Weighted average number of common shares outstanding - basic and diluted |
| 64,860,000 |
| 60,461,176 |
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| Period from May 31, | ||||
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| 2017 (Inception) to | ||||
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| July 31, 2018 |
| July 31, 2017 | ||||
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Net sales | $ | 12,930,726 | $ | - | |||||
Cost of goods sold |
| 4,964,010 |
| - | |||||
Gross profit |
| 7,966,716 |
| - | |||||
Operating Expenses |
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| Selling and marketing expenses |
| 6,044,357 |
| 288,417 | ||||
| General and administrative expenses |
| 1,585,186 |
| 303,796 | ||||
| Total operating expenses |
| 7,738,744 |
| 592,213 | ||||
Operating earnings (loss) |
| 337,172 |
| (592,213) | |||||
Other income (expense) |
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| Interest expense, net |
| (402,586) |
| (26,609) | ||||
| Change in fair value of derivative liabilities |
| (25,837) |
| (22,004) | ||||
| Total other income (expense), net |
| (428,423) |
| (48,613) | ||||
Loss before income taxes |
| (91,251) |
| (640,826) | |||||
Income tax provision (benefit) |
| - |
| - | |||||
Net loss | $ | (91,251) | $ | (640,826) | |||||
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Earnings (loss) per share: |
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| Basic | $ | (0.00) | $ | (0.01) | ||||
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| Diluted | $ | (0.00) | $ | (0.01) | ||||
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Weighted average common shares outstanding: |
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| Basic |
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| 66,561,304 |
| 52,218,182 | |||
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| Diluted |
| 66,561,304 |
| 52,218,182 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
SHARING SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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| Three Months |
| Period from May 31, |
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| 2017 (Inception) to |
CASH FLOWS FROM OPERATING ACTIVITIES: |
| July 31, 2018 |
| July 31, 2017 | |
| Net loss | $ | (91,251) | $ | (640,826) |
| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation and amortization |
| 7,947 |
| 200 |
| Stock-based compensation expense |
| 8,000 |
| 266,448 |
| Amortization of debt discount |
| 335,300 |
| 22,970 |
| Change in fair value of derivative liabilities |
| 25,837 |
| 22,004 |
| Changes in operating assets and liabilities: |
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| Accounts receivable |
| (143,034) |
| - |
| Inventory |
| (563,633) |
| - |
| Other current assets |
| (291,142) |
| - |
| Security deposits |
| (20,865) |
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| Accounts payable |
| 261,586 |
| 5,568 |
| Accrued and other liabilities |
| 413,998 |
| 499 |
| Net Cash Used in Operating Activities |
| (57,257) |
| (323,137) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
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| Payments for property and equipment |
| (118,723) |
| - |
| Cash from acquisition of subsidiaries |
| - |
| 57,605 |
| Cash paid for investments |
| - |
| (15,000) |
| Net Cash Used in Investing Activities |
| (118,723) |
| 42,605 |
CASH FLOWS FROM FINANCING ACTIVITIES: |
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| Proceeds from issuance of convertible notes payable |
| 325,000 |
| 35,000 |
| Repayment of convertible notes payable |
| (136,734) |
| - |
| Proceeds from issuance of Series C Convertible preferred stock |
| - |
| 333,500 |
| Proceeds from issuance of common stock |
| 40,000 |
| - |
| Repayment of promissory notes payable |
| (35,000) |
| (15,000) |
| Proceeds from related parties |
| - |
| 849 |
| Net Cash Provided by Financing Activities |
| 193,266 |
| 354,349 |
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Increase in cash and cash equivalents |
| 17,286 |
| 73,817 | |
Cash and cash equivalents, beginning of period |
| 768,268 |
| - | |
Cash and cash equivalents, end of period | $ | 785,554 | $ | 73,817 | |
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Supplemental cash flow information |
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| Cash paid for interest | $ | 41,972 | $ | - |
| Cash paid for taxes | $ | - | $ | - |
Supplemented disclosure of non-cash investing and financing activities: |
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| Series A Convertible Preferred Stock issued for equity investments | $ | 1,250,000 | $ | 1,407,188 |
| Derivative liability recognized as debt discount | $ | 325,000 | $ | 61,843 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
SHARING SERVICES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARYThree Months Ended JULY 31, 2018
(Unaudited)
NOTE 1 – NATURE–DESCRIPTION OF OPERATIONS AND BASIS OF PRESENTATION
The Company was originally formed to develop and market a taxi-ride sharing website and application (“web app”). Beginning in February 2017, the Company expanded its business model to also offer a wide range of travel and technology management and other products and services. In December 2017, the Company launched a wholly-owned subsidiary operating under the trade name “Elepreneurs.” One of Elepreneus’ leading product lines, “Elevate,” consists of Nutraceutical products which the Company terms “D.O.S.E.” (Dopamine, Oxytocin, Serotonin and Endorphins) and was developed and is owned by another of the Company’s wholly-owned subsidiaries, “Elevacity Global.” This product line has accelerated the Company’s growth during the last two quarters of the period from May 5, 2017 (inception) to April 30, 2018. The Company uses a direct-selling model and operates a subscription-based vacation portal. As part of its growth strategy, the Company has completed several strategic acquisitions and purchases of equity interests in certain companies as more fully discussed in our Annual Report on Form 10-K for the period from May 5, 2017 (inception) to April 30, 2018.
The condensed consolidated interim financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of Sharing Services, Inc. and subsidiaries (“Sharing Services”, “we”, “us”, or the “Company”) was incorporated on April 24, 2014 infor the State of Nevada. The Company’s wholly owned subsidiary, Total Travel Media, Inc. (“Total Travel Media”, or “TTM”), was incorporated onperiod from May 5, 2017 in the State of Nevada. The Company’s wholly-owned subsidiary, Four Oceans Holdings, Inc. (“Four Oceans”), was incorporated on September 22, 2017 in the State of Nevada. The fiscal year end is(inception) to April 30. The Company acquired Total Travel Media on May 23, 2017. While Total Travel Media is a wholly owned subsidiary of the Company, for financial accounting purposes the transaction has been treated as a reverse acquisition (reference is made to the paragraph below entitled “Recapitalization”). The Company acquired Four Oceans from related parties and was treated as an acquisition under common control. See Note 11 - Related Party Considerations.
The Company was originally formed to launch a taxi sharing website and application. Beginning on February 1, 2017 the Company changed its business model and is now a travel and technology management company. Sharing Services is a direct-selling model with a subscription-based vacation portal.
Share Exchange and Acquisition – Four Oceans Holdings, Inc.
On September 29, 2017, Sharing Services, Inc., entered into a Share Exchange Agreement with Four Oceans Holdings, Inc., a Nevada corporation. Pursuant to the terms of the Agreement, the Company acquired all of the shares of capital stock of Four Oceans from the holders of such stock (the “Equity-Holders”), in exchange for the issuance of Seventy-five Million (75,000,000) newly-issued restricted shares of the Company’s Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”). Following the closing, Four Oceans operated as a wholly-owned subsidiary of the Company.
Four Oceans was controlled by Alchemist Holdings, LLC, a Company controlled by our Chairman, who received 50,000,000 Series A Preferred stock; Bear Bull Market Dividends, Inc., a Company that is a significant shareholder of Sharing Services, who received 20,000,000 Series A Preferred stock; and Research and Referral BZ received 5,000,000 shares. As a result of these share exchanges, Four Oceans became a 100% owned subsidiary of the Company. As these transactions are between entities under common control, the Company has reported the results of operations for the period in a manner similar to a pooling of interests and has consolidated financial results since the initial date in which the above companies were under common control. Assets and liabilities were combined on their carrying values and no recognition of goodwill was made. The Company has presented earnings per share based on the new parent company shares issued to the former shareholders of the Company.
Share Exchange and Reorganization – Total Travel Media, Inc.
On May 23, 2017, Sharing Services, Inc., entered into a Share Exchange Agreement (the “Agreement”) with Total Travel Media, Inc. On May 23, 2017, there was a Closing of the transaction (the “Closing Date”). Pursuant to the terms of the Agreement, the Company acquired all of the shares of capital stock of TTM from the holders of such stock (the “Equity-Holders”), in exchange for the issuance of Ten Million (10,000,000) newly-issued shares of the Company’s Common Class B Stock, par value $0.0001 per share and (ii) Ten Million (10,000,000) newly-issued shares of the Company’s Series B Preferred Stock, par value $0.0001 per share. Following the Closing Date, TTM will operate as a wholly-owned subsidiary of the Company.
Recapitalization
For financial accounting purposes, this transaction was treated as a reverse acquisition by Total Travel Media, and resulted in a recapitalization with Total Travel Media being the accounting acquirer and Sharing Services as the acquired company. The consummation of this reverse acquisition resulted in a change of control. Accordingly, the historical financial statements prior to the acquisition are those of the accounting acquirer, Total Travel Media, and have been prepared to give retroactive effect to the reverse acquisition completed on May 23, 2017, and represent the operations of Total Travel Media. The consolidated financial statements after the acquisition date, May 23, 2017,
8
include the balance sheets of both companies at historical cost, the historical results of Total Travel Media and the results of the Company from the acquisition date. All share and per share information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the recapitalization.30, 2018.
Going concern
TheseThe accompanying consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and dischargesettle its liabilities in the normalordinary course of its business for the foreseeable future. To date theThe Company has generated $960,182 in revenues from its business operationsis an emerging growth company and has an accumulated deficit of $6,976,438. As ofnot generated positive cash flows from operations. In addition, prior to its fiscal quarter ended January 31, 2018, the Company had anot generated sales. Historically, the Company has funded its working capital deficitneeds and acquisitions primarily with capital transactions and with unsecured debt, including the issuance of $5,058,529.convertible notes. The Company requires additional funding to meet its ongoing obligations and to fund anticipated operating losses. The ability of the Companyintends to continue to raise capital and use unsecured debt, including the issuance of convertible notes, from time to time in the future as a going concern is dependent on raising capitalneeded to fund its initial business planworking capital needs and ultimatelystrategic acquisitions.
The Company recently initiated comprehensive direct sales and social media marketing initiatives intended to attain profitable operations. Accordingly, these factors raise substantialpromote its products and services and to drive long-term sales growth. There can be no assurance about the success of the Company’s growth initiatives and, accordingly, this raises reasonable doubt as to the Company’s ability to continue as a going concern. The Company has initiated extensive direct sales and social media marketing whichbelieves it expectswill be able to drive significant sales volume of the Company’s products, and services over the next several months. The Company expects to become profitable and not need additional outside funding oncefund its working capital needs have been met. The acceptancefor the next 12 months with unsecured borrowings, including the issuance of the Company’s marketing efforts are uncertainconvertible notes, capital transactions and, therefore, the Company has plans to continue to fund its business by way of private placements, promissory notes, convertible promissory notes and advancesultimately, cash from related parties as may be required.operations.
These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amountsassets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BasisWe adhere to the same accounting policies in the preparation of Presentationour condensed consolidated interim financial statements as we do in the preparation of our full-year consolidated financial statements. As permitted under GAAP, interim accounting for certain expenses is based on full-year assumptions.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”)GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net
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revenues and expenses recognized during the periods presented. Adjustments made with respectActual results may differ from these estimates in amounts that may be material to our consolidated financial statements. We believe that the use of estimates often relate to improved information not previously available.
Uncertainties with respect to such estimates and assumptions are inherentused in the preparation of our financial statements; accordingly, actual results could differ from these estimates.
statements, including our condensed consolidated interim financial statements, are reasonable. In managements’ opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Use of Estimates and AssumptionsAccounting Changes
The preparation of financial statements in accordanceIn May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions about the valuation and recognition of stock-based compensation expense, the valuation and recognition of derivative liability, valuation allowance for deferred tax assets and useful life of fixed assets.
Principles of Consolidation
For January 31, 2018, the unaudited consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, Total Travel Media, Inc. and Four Oceans Holding, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
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Cash and cash equivalents
Cash and cash equivalents include cash on hand and on deposit at banking institutions as well as all highly liquid short-term investments with original maturities of 90 days or less. As of January 31, 2018 the Company had cash and cash equivalents of $175,451.
Fair value measurements
Fair value is defined as the price that the Company would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent counter-party in the principal market or in the absence of a principal market, the most advantageous market for the investment or liability. A three-tier hierarchy is established to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs); and establishes a classification of fair value measurements for disclosure purposes.
The hierarchy is summarized in the three broad levels listed below:
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In accordance withCustomers, which supersedes Accounting Standards Codification (“ASC”) 815, the Company’s debt derivative liabilities are measured at fair value on a recurring basis, and are level 3 measurements in the three-tier fair value hierarchy.
There were no transfers between the levelsTopic 605, Revenue Recognition. A core principle of the fair value hierarchy duringnew guidance is that an entity should measure revenue in connection with its sale of goods and services to a customer based on the periodconsideration to which the entity expects to be entitled in exchange for each of inception (May 5, 2017) to January 31, 2018.
Fair value ofthose goods and services. The new standard must be adopted using either the retrospective or cumulative effect transition method. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. As required, the Company adopted ASU No. 2014-09, using the cumulative effect transition method, effective May 1, 2018 and its adoption did not have a material impact on its consolidated financial instruments
The Company’s financial instruments consist primarily of cash, accounts payablestatements and accrued expenses, and debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.business.
The following table summarizes fair value measurements by level at January 31, 2018 measured at fair valueimpact of adopting the new revenue standard on our financial statements was not material and relates primarily to our customers’ right of return and to recognition of revenue from services offered on a recurring basis:
January 31, 2018 |
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| Level 1 |
| Level 2 |
| Level 3 |
| Total |
Derivative liabilities |
| $ | - | $ | - | $ | 5,265,314 | $ | 5,265,314 |
Related Parties
subscription basis. We now defer revenue (and the related cost of goods sold) associated with our customers’ right of return. The Company follows ASC 850, “Related Party Disclosures,” forimpact of adopting the identification of related parties and disclosure of related party transactions (see Note 11).
Long-Lived Assets
Long-lived assets are evaluated for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets maynew standard on our revenue from subscription-based services was not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value.
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Property and Equipment
Furniture and equipment is recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives of the equipment are as follows:
Office equipment - 5 years
Furniture and fixtures - 3 years
Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.
Accounts Receivable and Allowance for Uncollectible Accounts
Substantially all of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments for services. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped in categories by the number of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged against the allowance when it is probable that the receivable will not be recovered. As of January 31, 2018, the Company determined no valuation allowance for doubtful accounts was required, for the Company’s accounts receivable.
Revenue Recognition
In accordance with ASC 605, “Revenue Recognition”, revenue is recognized when, specifically when all the following conditions are met:
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The Company generally recognizes revenue upon delivery and when both the title and risk and rewards pass to the Independent Representative or Customer. Product sales are recognized net of product returns and discounts referred to as “returns and allowances.” Net sales include product sales net of processing fees The Company generally receives the net sales price through credit card payments on the Company Website or at the point of sale. Products sold on an annual basis are recognized as revenue over the following twelve months. Allowances for product returns have not been provided due to the short period thatsubscription periods (general one year or less) and to our prior policy of recognizing revenue from subscription-based services ratably over the productssubscription period.
Historically, our sales returns have been sold. As historical data is collected a reserve will be provided at the time the sale is recorded.
The Company recognizes revenue when the products are shippedapproximately 2% of our consolidated net sales and services are complete.
Deferred Revenue
At January 31, 2018,our subscription-based revenues have been 1% of our consolidated net sales. In addition, the Company had advances from customersis an emerging growth company with limited sales history. Going forward, the Company will continue to monitor its sales returns history and its sales of $128,851. Advances from customers are a component of deferredsubscription-based services, and the Company will continue to recognize revenue in proportion to the consolidated balance sheets and includes billings to customers where the
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product has not shipped, for services that were in process but not completed and for annual memberships and other products which are recognized over the succeeding twelve months.
Costdocumented pattern of Sales
The Cost of merchandise sold is recognized at the time of revenue recognition, as the product is shipped and services are complete.
Share-Based Expense
ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Share-based expense totaled $1,308,948 for the period from inception (May 5, 2017) to January 31, 2018.
Advertising Costs
The Company follows ASC 720, “Advertising Costs,” and expenses costs as incurred. Advertising and marketing expense totaled $694,207 for the period from inception (May 5, 2017) to January 31, 2018.
Income Taxes
The Company utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry-forwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized.
The Company uses the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. At January 31, 2018, the Company did not record any liabilities for uncertain tax positions.
Basic and Diluted Net Loss per Common Share
Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. The weighted average number of shares is calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants, and other commitments to issue common stock were exercised or equity awards vest resulting in the
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issuance of common stock that could share in the earnings of the Company. There were convertible notes and accrued interest for approximately $575,034 and 101,874,540 convertible preferred shares issuedsatisfaction by the Company duringof such customer rights. Further, the period ended January 31, 2018. Potential dilutive instruments as at January 31, 2018, consisted ofCompany will provide the following common share equivalents:
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Diluted loss per share is the same as basic loss per share during periods where net losses are incurred since the inclusion of the potential common stock equivalents would be anti-dilutive as a result of the net loss.
Recently Issued Accounting Standardsadded disclosures required by ASU No. 2014-09 when material.
In NovemberJanuary 2017, the FASB has issued Accounting Standards Update (ASU)ASU No. 2017-14,2017-01, “Income Statement—Reporting Comprehensive IncomeBusiness Combinations (Topic 220), Revenue Recognition805): Clarifying the Definition of a Business” (Topic 605), and Revenue from Contracts with Customers (Topic 606).” (“ASU 2017-14 includes amendments to certain SEC paragraphs within the FASB Accounting Standards Codification (Codification)2017-01”). ASU 2017-14 amends2017-01 must be applied prospectively and provides a narrower framework to be used to determine if a set of assets and activities constitutes a business compared to the Codificationframework under the prior guidance and is generally expected to incorporateresult in greater consistency in the following previously issued guidance fromapplication of ASC Topic No. 805, “Business Combinations.” For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. As required, the SEC. ‘The amendments inCompany adopted ASU No. 2017-14 amends the Codification to incorporate SEC Staff Accounting Bulletin (SAB) No. 1162017-01 effective May 1, 2018 and SEC Interpretive Releaseits adoption did not have a material impact on Vaccines for Federal Government Stockpiles (SEC Release No. 33-10403) that bring existing SEC staff guidance into conformity with the FASB’s adoption of and amendments to ASC Topic 606, Revenue from Contracts with Customers.
In September 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.” The amendments in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. Both of the below entities may still adopt using the public company adoption guidance in the related ASUs, as amended. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 and ASU 2016-02.its consolidated financial statements.
In February 2017, the FASB has issued Accounting Standards Update (ASU)ASU No. 2017-05, ““Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” The amendments clarifyclarified that a financial asset isnonfinancial assets that are within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments also define the term in substance nonfinancial asset. The amendments clarify that nonfinancial assets within the scope ofASC Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. A contract that includes the transfer of ownership interests in one or more consolidated subsidiariesFor public companies, this amendment is within the scope of Subtopic 610-20 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. The amendments clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. Effective at the same time as the amendments in Update 2014-09, Revenue from Contracts with Customers (Topic 606). Therefore, public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the amendments in this Update to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the amendments in this Update to annual reporting periods beginning after December 15, 2018,effective for fiscal years, and interim periods within annual periods beginning after December 15, 2019. All other entities may apply the guidance earlier as of annual reporting periods beginning
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after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance earlier as of annual reporting periods beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance. An entity is required to apply the amendments in this Update at the same time that it applies the amendments in Update 2014-09. The Company is currently evaluating the potential impact this standard may have on its consolidated financial position and results of operations.
In January 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” These amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Effective for public business entities that are a SEC filers for annual or any interim goodwill impairment tests inthose fiscal years, beginning after December 15, 2019. Early2017. As required, the Company adopted ASU No. 2017-05 effective May 1, 2018 and its adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis. The Company doesdid not anticipate the adoption of ASU 2017-04 will have a material impact on its consolidated financial statements.
Recently Issued Accounting Standards
In January 2017,February 2016, the FASB issued ASU No. 2017-01,2016-02, “Business Combinations (Topic 805): ClarifyingLeases, which will require lessees to report on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating leases under the Definitionprior guidance. Under the new guidance, the lease liability must be measured initially based on the present value of a Business.” Thisfuture lease payments, subject to certain conditions. The right-of-use asset must be measured initially based on the amount of the liability, plus certain initial direct costs. The new guidance further requires that leases be classified at inception as either (a) operating leases or (b) finance leases. For operating leases, periodic expense will generally be flat (straight-line) throughout the life of the lease. For finance leases, periodic expense will decline (similar to capital leases under prior rules) over the life of the lease. The new standard clarifiesmust be adopted using a modified retrospective transition method. For public companies, this amendment is effective for fiscal years, and
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interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. We have not yet adopted this accounting pronouncement and are currently evaluating the definitionpotential impact this standard may have on our consolidated financial position and consolidated results of a businessoperations.
NOTE 3 – FAIR VALUE MEASURENTS OF FINANCIAL INSTRUMENTS
Our financial instruments consist of cash equivalents, trade accounts receivable, accounts payable, notes payable and provides a screenderivative liabilities. The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate their respective fair values due to determine when an integrated setthe short-term nature of assets and activities is not a business. The screen requires that when substantially allthese financial instruments.
There were no transfers between the levels of the fair value ofhierarchy during the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets,periods covered by the set is not a business. This new standard will be effective for the Company on January 1, 2018, however, early adoption is permitted with prospective application to any business development transaction.
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’saccompanying consolidated financial statements.
NOTE 3 – ACCOUNTS RECEIVABLEConsistent with the valuation hierarchy described above, we categorized certain of our financial assets and liabilities as follows:
| July 31, 2018 | |||||
Assets | Total | Level 1 | Level 2 | Level 3 | ||
Investment in unconsolidated entities | $ 4,007,188 | $ - | $ - | $ 4,007,188 | ||
Total assets | $ 4,007,188 | $ - | $ - | $ 4,007,188 | ||
Liabilities | ||||||
Derivative liabilities | 31,066,441 | - | - | 31,066,441 | ||
Notes Payable | 140,000 | - | 140,000 | - | ||
Total liabilities | $ 31,206,441 | $ - | $ 140,000 | $ 31,066,441 |
As at January 31, 2018, accounts receivable of $366,269 represents the billed revenue due from merchant processor net of deferred revenue and merchant processing fees. The full amount was received in subsequent payments, thus no allowance for doubtful accounts was required at January 31, 2018
| April 30, 2018 | |||||
Assets | Total | Level 1 | Level 2 | Level 3 | ||
Investment in unconsolidated entities | $ 2,757,188 | $ - | $ - | $ 2,757,188 | ||
Total assets | $ 2,757,188 | $ - | $ - | $ 2,757,188 | ||
Liabilities | ||||||
Derivative liabilities | 30,172,153 | - | 35,000 | 30,137,153 | ||
Total liabilities | $ 30,172,153 | $ - | $ 35,000 | $ 30,137,153 |
NOTE 4 – PREPAID EXPENSES AND DEPOSITSEARNINGS (LOSS) PER SHARE
Prepaid expensesWe calculate basic earnings (loss) per share by dividing net income (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 outstanding stock warrants and deposits consistedother commitments to issue common stock, including shares issuable upon the conversion of convertible notes outstanding, except where the following at January 31, 2018:impact would be anti-dilutive.
| January 31, 2018 | |
Prepaid expenses | $ | 57,910 |
Vendor deposits |
| 210,287 |
Security deposit |
| 29,161 |
| $ | 297,358 |
The following table sets forth the computations of basic and diluted loss per share:
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| Period from May 5, 2017 (Inception) to July 31, 2017 | |||||||||||
Net loss |
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Weighted average basic shares |
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| 66,561,304 |
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| 52,218,182 |
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| 66,561,304 |
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Prepaid expenses consistThe potentially dilutive instruments outstanding as of payments for goodsJuly 31, 2018 and services which will be consumed in the Company’s operations in the next operating cycle.
142017, were as follows:
Vendor deposits represent 50% of open purchase orders to the Company’s primary supplier, per the vendor agreement.
Security deposits are for the new corporate offices per the lease agreement. See subsequent events (Note 14) regarding the new Corporate offices.
| July 31, 2018 |
| July 31, 2017 |
Stock warrants | 7,243,333 |
| - |
Stock options | 3,000,000 |
| - |
Convertible notes | 98,287,940 |
| 243,284 |
Convertible Preferred Stock | 105,644,540 |
| 17,754,540 |
Total potential incremental shares | 214,175,813 |
| 17,997,824 |
NOTE 5 -– PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at JanuaryJuly 31, 2018 and April 30, 2018:
| January 31, | ||||||||||||
| 2018 | ||||||||||||
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| July 31, 2018 |
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| April 30, 2018 | ||||||||
Furniture and fixtures | $ | 18,928 | $ | 131,560 |
| $ | 84,289 | ||||||
Office and computer equipment |
| 28,178 | |||||||||||
Accumulated depreciation |
| (933) | |||||||||||
Office equipment |
| 55,163 |
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| 18,102 | ||||||||
Computer equipment and software |
| 35,471 |
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| 15,039 | ||||||||
Leasehold improvements |
| 50,448 |
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| 11,888 | ||||||||
Total property and equipment |
| 272,642 |
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| 129,318 | ||||||||
Accumulated depreciation and amortization |
| (18,800) |
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| (10,853) | ||||||||
Property and equipment, net | $ | 253,842 |
| $ | 118,465 |
The depreciationDepreciation and amortization expense was $7,947 for the three months ended July 31, 2018, and $200 for the period from inceptionMay 5, 2017 (inception) to January 31,2018 was $800.July 31, 2017.
NOTE 6 – EQUITY INVESTMENTS IN UNCONSOLIDATED ENTITIES
212 Technologies, LLC
On May 21, 2017, the Company entered into a transaction whereby the Company will acquireStakeholder and Investment Agreement pursuant to which it acquired a Forty-eight percent (48%)24% interest in 212 Technologies, LLC (“212 Tech”), a Montana limited liability company, (“212 Tech”), in exchange for 15,628,7505,628,750 shares of the Company’sits Series A Convertible Preferred Stock with a deemed value of $0.25 per share, or $1,407,188, and cash$100,000 in the amount of $100,000.cash. 212 Technologies, LLCTech is a developer of end-to-end online marketing and direct sales software systems. Initially,
Under the Company will acquire a Twenty-four percent (24%) interest in exchange for 5,628,750 sharesterms of the Company’s Series A Convertible Preferred Stock and cash. The Stakeholder and Investment Agreement, dated May 21, 2017 also provides for the acquisition by the Company ofhas the remaining twenty-four percent (24%)option to acquire an additional 24% interest in 212 Tech at a future date in exchange for an additional 10,000,000 shares of the Company’s Series A Convertible Preferred Stock, when both of the following milestonesconditions have been reached:met: (i) Oneone year has passed from the original MOU; Closing Date; and (ii) the closing price per share of the Company’s common stock is quoted atequals or exceeds $10.00 or more.per share, as reported by OTC Markets, Inc. The Company, in exchange, received a non-exclusive, non-royalty bearing, perpetual, worldwide license of allcertain the intellectual property rights of the Intellectual Property Rights developed and held by 212 Tech.
The
561 LLC
On October 4, 2017, the Company entered into a Share Exchange Agreement pursuant to which it acquired a 24%25% interest in 212 Tech by paying $25,000561 LLC in cash, leaving a payableexchange for 2,500,000 shares of $75,000, and issuing 5,628,750 shares ofour Series A Convertible Preferred Stock with a deemed value of $0.25 per share, or $1,407,188. As$625,000, to be issued in four equal instalments over time. Pursuant to the terms of January 31,the Share Exchange Agreement, in May 2018, we recorded $1,507,188 as an investment at cost.
561 LLC
Thethe Company acquired a 25%increased its cumulative equity interest in 561 LLC by agreeing to issue40% in exchange for 2,500,000 shares of its Series A Convertible Preferred Stock. As of July 31, 2018, the Company had issued 4,375,000 shares of its Series A Convertible Preferred Stock with(with a deemed value of $0.25 per share or $625,000. The shares are to be issued to the$1,093,750) in connection with its acquisition of 561 Equity-holders as follows: 625,000 shares issued within 5 days of the closing date and 625,000 shares issued on or before December 31, 2017. These shares are issued and outstanding at January 31, 2018. 625,000 Shares are to be issued on or before April 30, 2018 and 625,000 Shares are to be issued on or before August 31, 2018. As of January 31, 2018, we recorded $312,500 as an investment at cost for the 1,250,000 shares issued.LLC.
The 561 Equity-HoldersUnder the terms of the Share Exchange Agreement, the sellers shall be entitled to an additional Two Million Five Hundred Thousand (2,500,000) of2,500,000 shares of the Company’s restricted Series A Convertible Preferred Stock $0.0001 par value per share, when both of the following conditions have been met: (a) Following the first year’s anniversary ofone year has passed from the Closing Date and (b) the closing bid price of the Company’s common stock equals or exceeds $5.00 per share, as reported by OTC Markets, Inc. If these conditions are met, the Company shall cause the issuance of such shares within ten (10) calendar days of the satisfaction of such conditions.
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The 561 Equity-Holders shall be entitled to an additional Two Million Five Hundred Thousand (2,500,000) of shares of the Company’s restricted Series A Preferred Stock, $0.0001 par value per share, when the following conditions have been met: The Company shall be the owner of record of no less than Forty percent (40%) of the member interests in each of (i) 561 and (ii) its affiliated company, America Approved Commercial, LLC. If these conditions are met, the Company shall cause the issuance of such shares within ten (10) calendar days of the satisfaction of such conditions.
America Approved Commercial LLC
TheOn October 4, 2017, the Company entered into a Share Exchange Agreement pursuant to which it acquired a 25% interest in America Approved Commercial LLC by issuing(“AAC”) in exchange for 2,500,000 shares of our Series A Convertible Preferred Stock with a deemed value of $0.25 pureper share, or $625,000. The$625,000, to be issued in four equal instalments over time. Pursuant to the terms of the Share Exchange Agreement, in May 2018, the Company issued 625,000increased its cumulative equity interest in AAC to 40% in exchange for 2,500,000 shares during the period ended January 31, 2018. of its Series A Convertible Preferred Stock. As of JanuaryJuly 31, 2018, we recorded $ 312,500 as an investment at cost for the first installmentCompany had issued 4,375,000 shares of 625,000 shares issued.its Series A Convertible Preferred Stock (with a deemed value of $1,093,750) in connection with its acquisition of AAC.
The AAC Equity-HoldersUnder the terms of the Share Exchange Agreement, the sellers shall be entitled to an additional Two Million Five Hundred Thousand (2,500,000) of2,500,000 shares of the Company’s restricted Series A Convertible Preferred Stock $0.0001 par value per share, when both of the following conditions have been met: (a) Following the first year’s anniversary ofone year has passed from the Closing Date and (b) the closing bid price of the Company’s common stock equals or exceeds $5.00 per share, as reported by OTC Markets, Inc. If these conditions are met, the Company shall cause the issuance of such shares within ten (10) calendar days of the satisfaction of such conditions.Inc
The AAC Equity-Holders shall be entitled to another additional Two Million Five Hundred Thousand (2,500,000) of shares of the Company’s restricted Series A Preferred Stock, $0.0001 par value per share, when the following conditions have been met: The Company shall be the owner of record of no less than Forty percent (40%) of the member interests in each of (i) AAC and (ii) its affiliated company, 561, LLC. If these conditions are met, the Company shall cause the issuance of such shares within ten (10) calendar days of the satisfaction of such conditions.
Medical Smart Care LLC
TheOn October 4, 2017, the Company entered into a Share Exchange Agreement pursuant to which it acquired a 40% interest in Medical Smart Care LLC (“Smart Care”) in exchange for 1,000,000 shares of its Series A Convertible Preferred Stock with a deemdeemed value of $0.25 pure share, or $250,000. The shares are to be issued to the Medical Smart Care Equity-holder$250,000, in four equal installments as follows: (a) 250,000 shares were issued within 5 days of the closing date andClosing Date (b) 250,000 shares were issued on or before December 31, 2017. These2017; (c) 250,000 shares were issued in November and December 2017 with the mutual consent of the parties. 250,000 Shares are to be issued on or before April 30, 2018; and 250,000 Sharesshares are to be issued on or before August 31, 2018. As of JanuaryJuly 31, 2018, we recorded $125,000 as an investment at cost for the installmentsCompany had issued 750,000 shares of 500,000 shares issued.its Series A Convertible Preferred Stock (with a deemed value of $187,500) in connection with the acquisition of Smart Care.
LEH Insurance Group LLC
TheOn October 4, 2017, the Company entered into a Share Exchange Agreement pursuant to which it acquired a 40% interest in LEH Insurance Group LLC (“LEHIG”) by issuingin exchange for 500,000 shares of its Series A Convertible Preferred Stock with a deemdeemed value of $0.25 pureper share, or $125,000. AsUnder the terms of January 31, 2018, we recorded $125,000 as an investment at cost. The 500,000 shares were issued to the LEHIG Equity-holder in November 2017.
The LEHIG Equity-HolderShare Exchange Agreement, the sellers shall be entitled to an additional Five Hundred Thousand (500,000) of500,000 shares of the Company’s restricted Series A Preferred Stock $0.0001 par value per share, when the following condition has been met: Priorprior to December 31, 2018, LEHIG has booked contracts representing insurance premiums of at least Five Hundred Thousand dollars ($500,000). If this condition is met,no less than $500,000. In addition, under the Company shall cause terms of the issuance of such shares within ten (10) calendar days ofStakeholder and Investment Agreement, the satisfaction of such conditions.
The LEHIG Equity-Holdersellers shall be entitled to a secondan additional Five Hundred Thousand (500,000) of500,000 shares of the Company’s restricted Series A Preferred Stock $0.0001 par value per share, when the following condition has been met: Priorprior to December 31, 2018, LEHIG has booked contracts representing insurance premiums of at least One Million dollars ($1,000,000). If this condition is met,no less than $1,000,000. As of July 31, 2018, the Company shall causehad issued 500,000 shares of its Series A Convertible Preferred Stock (with a deemed value of $125,000) in connection with the issuanceacquisition of such shares within ten (10) calendar days of the satisfaction of such conditions.
LEHIG.
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NOTE 7 - ACCOUNTS PAYABLEACCRUED AND ACCRUED EXPENSESOTHER CURRENT LIABILITIES
Accounts payableAccrued and accrued expenses consistedother current liabilities consist of the following at Januaryas of July 31, 2018 and April 30, 2018:
| January 31, 2018 | |
Accounts payable | $ | 68,738 |
Accrued commissions |
| 240,884 |
Accrued expenses |
| 56,211 |
Accrued interest |
| 11,974 |
| $ | 377,807 |
|
| July 31, 2018 |
| April 30, 2018 |
Accrued sales commissions | $ | 1,850,615 | $ | 2,091,081 |
Deferred sales revenues |
| 1,356,927 |
| 1,096,180 |
Accrued expenses |
| 187,071 |
| 252,259 |
Accrued investments payable |
| 83,490 |
| 45,000 |
Notes payable |
| 140,000 |
| 35,000 |
Accrued interest payable |
| 62,505 |
| 34,644 |
Other accrued liabilities |
| 364,754 |
| 65,444 |
| $ | 4,045,362 | $ | 3,619,608 |
Accrued sales commissions consistedconsist of commissions and certain bonuses earned onby the Company’s independent sales representatives of products and services by independent representatives and paidthe Company in accordance with the following month.Company’s compensation plan.
NOTE 8 - NOTES PAYABLE
Notes payable consistedDeferred sales revenues are comprised of product sales billed but not shipped the following at January 31, 2018:
|
| January 31, 2018 |
|
| Interest Rate |
|
| Maturity |
| |
Dated – March 20, 2017 |
| $ | 10,000 |
|
| 12% |
|
| March 18, 2018 |
|
Dated – May 4, 2017 |
|
| 10,000 |
|
| 12% |
|
| May 3, 2018 |
|
Dated – May 11, 2017 |
|
| 15,000 |
|
| 12% |
|
| May 10, 2018 |
|
Total notes payable |
|
| 35,000 |
|
|
|
|
|
|
|
Less: current portion of notes payable |
|
| 35,000 |
|
|
|
|
|
|
|
Long-term notes payable |
| $ | - |
|
|
|
|
|
|
|
balance sheet date, the unearned portion of various annual memberships and other products sold on an annual basis, and amount associated with unsettled performance obligations.
As of January 31,In May 2018, the Company entered into an agreement with Global Payroll Gateway (“GPG”) pursuant to which GPG now provides certain wholesale merchant services to Sharing Services and its subsidiaries. In connection with the agreement, in May 2018, GPG granted Sharing Services an interest-free loan in the amount of $500,000 to be repaid out of funds due to Sharing Services in connection with merchant transactions processed by GPG for Sharing Services. As of the date of this Quarterly Report, this loan has been repaid in full. In addition, in August 2018, GPG granted Sharing Services an interest-free loan in the amount of $500,000 to be repaid, in daily instalments of $5,556, out of funds due to Sharing Services in connection with merchant transactions processed by GPG for Sharing Services. The unpaid balance on the note ($140,000) is included in accrued interest on these notes of $3,255 and recorded interest expense of $3,117other current liabilities in interest expense for the period from inception (May 5, 2017) to Januaryour consolidated balance sheet at July 31, 2018.
NOTE 98 - CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted of the following as of JanuaryJuly 31, 2018 and April 30, 2018:
| |||
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| |
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| ||
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| ||
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| ||
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| ||
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| ||
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| ||
| |||
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| ||
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|
|
Issuance Date |
| July 31, 2018 |
| April 30, 2018 |
September 26, 2017 | $ | 15,000 | $ | 15,000 |
October 6, 2017 |
| 50,000 |
| 50,000 |
November 13, 2017 |
| 50,000 |
| 50,000 |
November 21, 2017 |
| 5,000 |
| 5,000 |
December 15, 2017 |
| - |
| 100,000 |
January 22, 2018 |
| 250,000 |
| 250,000 |
February 8, 2018 |
| 250,000 |
| 250,000 |
March 16, 2018 |
| 250,000 |
| 250,000 |
April 13, 2018 |
| 100,000 |
| 100,000 |
May 16, 2018 |
| 203,000 |
| - |
July 2, 2018 |
| 128,000 |
| - |
Total convertible notes payable |
| 1,301,000 |
| 1,070,000 |
Less: debt discount and deferred financing fees |
| (812,525) |
| (816,825) |
|
| 488,475 |
| 253,175 |
Less: current portion of convertible notes payable |
| 480,383 |
| 247,602 |
Long-term convertible notes payable | $ | 8,092 | $ | 5,573 |
On May 16, 2018, the Company entered into a financing transaction whereby the Company borrowed $203,000 (prior to $3,000 in financing costs) from Power UP Lending Group Ltd., an accredited investor, in exchange for the
13
issuance by the Company of a promissory note in favor of the lender. In addition, on July 2, 2018, the Company entered into a financing transaction whereby the Company borrowed $128,000 (prior to $3,000 in financing costs) from Power UP Lending Group Ltd. in exchange for the issuance by the Company of a promissory note in favor of the lender. The notes bear interest at 12% and mature one year from each respective issuance date. Net proceeds from the notes, in the aggregate, were $325,000. Each note is convertible into shares of the Company’s common stock at any time following 180 days from the issuance date.
On June 29, 2018 the Company paid $143,211 (including accrued but unpaid interest), to settle in full a convertible note in the principal amount of $100,000. During the three months ended July 31, 2018, the Company recorded prepayment penalties of $36,734 and accrued interest payable of $6,477 and recognized a gain of $121,823 resulting from the change in the fair value of this derivative liability, in connection with this note.
In the three months ended July 31, 2018 and the period from May 5, 2017 (inception) to July 31, 2017, the Company recognized amortization expense related to the debt discount and deferred financing fees of $71,478 for the period of inception (May 5, 2017) to January 31, 2018,$335,300 and $22,970, respectively, which areis included in interest expense in the
17
our consolidated statements of operations. The Company also recorded an interest of $25,139 on$74,448 (including the prepayment penalty discussed above) and $2,140 in connection with its convertible notes payables, duringin the three months ended July 31, 2018 and the period from inception (MayMay 5, 2017)2017 (inception) to January 31, 2018.
On November 14, 2017, the Company paid $90,055, for settlement of the note dated May 15, 2017, with a principal balance of $63,000. For the period ended January 31, 2018, the Company recorded $23,534 in prepayment penalties and accrued interest payable and recognized a gain of $93,285 from the change in derivative liability.
On December 28, 2017, the Company paid $54,420, for settlement of the note dated June 20, 2017, with a principal balance of $38,000. As of January 31, 2018, the Company recorded $14,321 in prepayment penalties and accrued interest payable and recognized a gain of $57,439 from the change in derivative liability.
Promissory Notes – Issued in Fiscal year 2018
During the period of inception (May 5, 2017) to January 31, 2018, the Company issued a total of $616,000 notes with the following terms:
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| |
|
| |
|
| |
|
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The notes allow the Company to redeem the notes at rates ranging from 110% to 135% depending on the redemption date provided that no redemption is allowed after the 180th day. The Company received net cash of $509,000 on the convertible notes and recognized $6,000 as deferred financing fee, which is being amortized over the term of the convertible notes.
The Company determined that the conversion feature met the definition of a liability in accordance with ASC Topic No. 815 - 40, “Derivatives and Hedging - Contracts in Entity's Own Stock,” and therefore bifurcated the embedded conversion option once the note becomes convertible and accounted for it as a derivative liability. The fair value of the conversion feature was recorded as a debt discount and amortized to interest expense over the term of the note.
The Company valued the conversion feature using the Binomial option pricing valuation model. The fair value of the derivative liability for all the notes amounted to $7,376,788. $544,000 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $6,832,788 was recognized as a “day 1” derivative loss.
NOTE 109 - DERIVATIVE LIABILITIES
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “Derivatives and Hedging,” and determined that the instrumentconversion feature on its convertible notes and stock warrants should be classified as a derivative liability, under the ASC 815 guidance, since the conversion option becomes effective at issuance resulting inrate is tied to the market price of the Company’s common stock and, accordingly, there beingis no explicit limit to the number of shares issuable upon conversion due to be delivered upon settlement ofcontingencies affecting the above conversion options.rate.
The Company determined ourthat its derivative liabilities tomust be aclassified in Level 3 of the three-level hierarchy for measuring fair value measurement(please see Note 3) and useduses a multi-nominal lattice model to calculate the fair value as of January 31, 2018.these liabilities. The multi-nominal lattice model requires six basic data inputs: (1) the exercise, conversion or strike price, time to expiration,(2) the risk freeexpected life (in years), (3) the risk-free interest rate, (4) the current stock price, (5) the estimatedexpected volatility offor the Company’s common stock, price inand (6) the future, and theexpected dividend rate.yield. Changes to these inputs could produceresult in a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the
18
multi-nominal lattice valuation model. The following weighted-average assumptions were used for the period ended January 31, 2018:when valuing our derivative liabilities:
| Three months ended July 31, 2018 |
|
| |
Expected term (in years) | 1.0-5.0 |
|
|
|
|
| |||
Expected average volatility | 180% - 255% |
| | |
Expected dividend yield | - |
| - | |
Risk-free interest rate | 1.65% - 2.85% |
| |
The following table summarizes the derivative liabilities included in theour consolidated balance sheet at JanuaryJuly 31, 2018:
Fair Value Measurements Using Significant Observable Inputs (Level 3) | |||
Balance |
| $ |
|
|
| ||
Addition of new derivatives recognized as debt discounts |
|
|
|
|
| ||
|
|
|
|
Reclassification of derivatives due to tainted instruments | 226,949 | ||
Gain on change in fair value of the derivative |
|
|
|
Balance - |
| $ |
|
ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item. 14
The following table summarizes the loss (gain) on derivative liability included in the incomeour consolidated statement of operation for the three months ended July 31, 2018 and the period of inception (Mayfrom May 5, 2017)2017 (inception) to JanuaryJuly 31, 2018.2017.
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| |
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| Three months ended July 31, 2018 |
| Period from May 5, 2017 (Inception) to July 31, 2017 | ||||
Day-one loss due to derivative liabilities on convertible notes payable and warrants |
| $ | 634,536 |
| $ | 28,494 | ||
Gain on change in fair value of the derivative |
|
| (608,699) |
|
| (6,490) | ||
Loss on change in fair value of derivative liabilities |
| $ | 25,837 |
| $ | 22,004 |
NOTE 10 – INCOME TAXES
The Company is an emerging growth company and, prior to its fiscal quarter ended July 31, 2018, had not generated pre-tax earnings or taxable earnings from its operations. As of the date herein, the ability of the Company to consistently generate future pre-tax earnings or taxable earnings remains uncertain. Accordingly, the Company has not recorded a provision for income taxes in its consolidated financial statements for the periods covered by this quarterly report.
NOTE 11 - RELATED PARTY CONSIDERATIONSTRANSACTIONS
Alchemist Holdings, LLC
As part ofIn connection with the Company’s acquisition of Total Travel Media (see Note 1),in May 2017, the Company issued 7,500,000 shares of its Series B Preferred Stock and 7,500,000 shares of its Common Stock Class B to Alchemist Holdings, LLC (“Alchemist”), which is controlled by the Chairman of our Chairman, Robert Oblon, received 7,500,000 shares ofBoard. In connection with the Series B Convertible Preferred Stock (75% of the issued shares) and 7,500,000 shares of the Common Class B Stock (75% of the issued shares), respectively.
As part of theCompany’s acquisition of Four Oceans, Holdings, Inc. (see Note 1), Alchemist receivedthe Company issued 50,000,000 shares of theits Series A Convertible Preferred Stock (66.7%to Alchemist. Please see Note 1 of Notes to the issued shares).Consolidated Financial Statements located in ITEM 8 – Financial Statements and Supplementary Data in our Annual Report on Form 10-K for the period from May 5, 2017 (inception) to April 30,2018, for more details about the acquisitions of Total Travel Media and Four Oceans.
On March 15, 2017, the Company entered into a Consultancy and Marketing Agreement with Alchemist pursuant to providewhich Alchemist provides marketing and consulting services, tools, websites, video production, and event management services. The Agreement shall remain in effect untilservices to the completion of the services.Company. The Agreement may be terminated by the Company, without cause and without liability by giving 14 calendar days written notice of such termination to Alchemist. Total cost for these services were estimated to be $840,000 for twelvetermination. During the three months from agreement date. Theended July 31, 2018, the Company has paid $862,361 to the related party,did not incur consulting fees or expenses pursuant to this agreement, during the period ended January 31, 2018. Of this amount, $ 694,207 was paid post reverse acquisition (May 23, 2017) and is included in the marketing
19
expense in the accompanying financial statements. For the period ended January 31, 2018 there was $69,000 paid to related parties for other services.agreement.
The Company purchased property, plant and equipment of $18,928 and inventory amounting to $42,890 from Alchemist, during the period from May 23, 2017 (inception) to January 31, 2018.
Subsequent to January 31, 2018, approximately $35,500 was paid to related parties.
Promissory Note - Bear Bull Market Dividends, Inc.
As part ofIn connection with the Company’s acquisition of Total Travel Media (see Note 1), Bear Bull Market Dividends, Inc. (“Bear Bull”), receivedin May 2017, the Company issued 2,500,000 shares of theits Series B Convertible Preferred Stock (25% of the issued shares) and 2,500,000 shares of theits Common Stock Class B Stock (25%to Bear Bull, a significant shareholder of Sharing Services. In connection with the issued shares), respectively.
As part of theCompany’s acquisition of Four Oceans, Holdings, Inc. (see Note 1), Bear Bull receivedthe Company also issued of 20,000,000 shares of theits Series A Convertible Preferred Stock (26.7% of the issued shares).
On April 7, 2017, the Company issued a Promissory Note to Bear Bull for $16,500, due April 6, 2018. The Note carries an annual interest rate of 12%. As of January 31, 2018, the accrued interest on the note amountedand 5,000,000 shares to $1,627.another shareholder.
Convertible Promissory Note – Caye Island Ventures LLC
On November 13, 2017, the Company received financing in the amount of $50,000 from Cay Island Ventures LLC, a Company owned by a shareholder of Sharing Services. The $50,000 convertible promissory note bears 12% interest and matures on November 13, 2018. The holder shall be entitled, commencing 180 days from November 13, 2017, to convert any portion of the outstanding and unpaid conversion amount into fully paid and non-assessable shares of Common Stock. Conversion price which is 80% of the average of the lowest two traded prices, determined on the then current trading market for the Company’s common stock, for the 15 trading days prior to conversion. The Company may prepay any portion of the principal amount at 115% of such amount along with any accrued interest of this note at any time upon three days written notice to the holder. The Company valued the conversion feature using the Binomial option pricing valuation model (see Note 10). The fair value of the derivative liability for the note amounted to $57,276. $50,000 of the value assigned to the derivative liability was recognized as a debt discount to the note while the balance of $7,276 was recognized as a “day 1” derivative loss. The discount is being amortized over the life of the note using the effective interest method resulting in $10,822 of interest expense and $39,178 as unamortized discount, for the period ended January 31, 2018. As of January 31, 2018, the Company accrued interest on this note of $1,315 and recorded $1,315 in interest expense for the period from inception (May 5, 2017) to January 31, 2018.
Other
During the period from May 5, 2017 to January 31, 2018, the Company paid no management fees to our CEO and CFO.
NOTE 12 - STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has authorized 200,000,000 preferred shares with a par value of $0.0001 per share. The Board of Directors is authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other series and classes.
Series A Convertible Preferred Stock
The Company has authorized the issuance of one hundred million (100,000,000) shares of Series A Preferred Stock. The Series A Preferred shares are senior in ranking to the Series C Preferred shares, but junior to the Series B Preferred shares. The affirmative vote of the holders of Eighty-six percent (86%) of the issued and outstanding shares of Series A Preferred Stock shall be required for the Board of Directors to: (i) declare dividends upon shares of common stock unless the Series A Preferred shares are to receive the same dividend as the common shares, on an
20
as converted basis; (ii) redeem the shares of Series A Preferred Stock at a price of $0.001 per share; (iii) authorize or issue additional or other capital stock that is junior or equal rank to the Series A Preferred shares with respect to the preferences as to distributions and payments upon the liquidation or dissolution and winding up of the Company; and (iv) amend, alter, change, or repeal any of the powers, designations, preferences, and rights of the 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 shall receive out of the assets of the Company the sum of $0.001 per shares before any payment or distribution shall be made on the Common Stock, or any other class of capital stock of the Company ranking junior to the Series A Preferred Stock. For a period of ten (10) years from the date of issuance of shares of Series A Preferred Stock, the holders may elect to convert each share of Series A Preferred Stock into one share of the Company’s Common Stock. Each share of Series A Preferred Stock is entitled to one vote when voting as a class or together with shares of Common Stock.
FromIn May 5, 2017 to January 31, 2018, the Company issued the following5,000,000 shares of its Series A Convertible Preferred Stock:
·
On January 10, 2018 we issued 625,000 shares of Series A Convertible preferred stock to 561 LLC, as partStock, in the aggregate, in connection with its previously disclosed acquisition of an equity investment for 25% ofinterest in 561, LLC. The shares were issued for a deemed value of $0.25 per share or $156,250 (see Note 4).
·
On January 10, 2018 we issued 625,000 shares of Series A Convertible preferred stock to America Approved Commercial LLC as part of an equity investment for 25% of and America Approved Commercial LLC. The shares were issued for a deemed value of $0.25 per share or $156,250 (see Note 4).
·
On January 10, 2018, we issued 250,000 shares of Series A Convertible preferred stock to Medical Smart Care LLC, as part of an equity investment for 40% of Medical Smart Carer LLC. The shares were issued for a deemed value of $0.25 per share or $62,500 (see Note 4).
·
On October 4, 2017, we issued 500,000 shares of Series A Convertible preferred stock to LEH Insurance Group LLC, as part of an equity investment for 40% of to LEH Insurance Group LLC. The shares were issued for a deemed value of $0.25 per share or $125,000 (see Note 4).
·
On October 4, 2017, we issued 250,000 shares of Series A Convertible preferred stock to Medical Smart Care LLC, as part of an equity investment for 40% of Medical Smart Care LLC. The shares were issued for a deemed value of $0.25 per share or $62,500 (see Note 4).
·
On October 4, 2017, we issued 625,000 shares of Series A Convertible preferred stock to America Approved Commercial LLC, as part of an equity investment for 25% of America Approved Commercial LLC. The shares were issued for a deemed value of $0.25 per share or $156,250 (see Note 4).
·
On October 4, 2017, we issued 625,000 shares of Series A Convertible preferred stock to 561 LLC, as part of an equity investment for 25% of 561 LLC. The shares were issued for a deemed value of $0.25 per share or $156,250 (see Note 4).
·
On September 29, 2017, we issued 75,000,000 shares of Series A Convertible preferred stock, 50,000,000 shares to Alchemist Holdings, 20,000,000 shares to Bear Bull Market Dividends, Inc., and 5,000,000 shares to Research and Referral, BZ; as an acquisition for 100% of Four Oceans Holdings, Inc. The acquisition was under common control and the deemed value was the historical cost of Four Oceans Holdings, Inc. (see Note 1).
·
From June to July, 2017, we issued 1,065,790 shares of Series A Convertible preferred stock to consultants for a deemed value of $0.25 per share or $266,448.
·
On May 31, 2017, we issued 5,628,750 shares of Series A Convertible preferred stock to 212 Technologies, LLC, as part of an equity investment for 24% of 212 technologies, LLC. The shares were issued for a deemed value of $0.25 per share or $1,407,188 (see Note 4).
As of JanuaryJuly 31, 2018, 85,194,540there were 91,694,540 shares of seriesour Series A Convertible Preferred Stock were issued and outstanding.
21
Series B Convertible Preferred Stock
The Company has authorized the issuanceAs of ten million (10,000,000) seriesJuly 31, 2018, there were 10,000,000 shares of our Series B Preferred Stock. The Series B Preferred shares are senior in ranking to the Series A and Series C Preferred shares. The affirmative vote of the holders of Eighty-six percent (86%) of the issued and outstanding shares of Series B Preferred Stock shall be required for the Board of Directors to: (i) declare dividends upon shares of common stock unless the Series B Preferred shares are to receive the same dividend as the common shares, on an as converted basis; (ii) redeem the shares of Series B Preferred Stock at a price of $0.001 per share; (iii) authorize or issue additional or other capital stock that is senior, junior or equal rank to the Series B Preferred shares with respect to the preferences as to distributions and payments upon the liquidation or dissolution and winding up of the Company; and (iv) amend, alter, change, or repeal any of the powers, designations, preferences, and rights of the Series B Preferred Stock. Upon the dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, the holders of the Series B Preferred Stock shall receive out of the assets of the Company the sum of $0.001 per shares before any payment or distribution shall be made on the Common Stock, or any other class of capital stock of the Company ranking junior to the Series B Preferred Stock. For a period of ten (10) years from the date of issuance of shares of Series B Preferred Stock, the holders may elect to convert each share of Series B Preferred Stock into one share of the Company’s Common Stock. Each share of Series B Preferred Stock is entitled to one vote when voting as a class and one thousand votes when voting together with shares of Common Stock.
On May 23, 2017, pursuant to the Share Exchange Agreement (See Note 1), the Company issued 10,000,000 shares of Series B convertible preferred stock to the stockholders of Total Travel Media in exchange for 10,000,000 shares of Total Travel Media’s common stock, representing 100% of its issued and outstanding common stock. As a result of the reverse acquisition accounting, these shares issued to the former Total Travel Media stockholders are treated as being outstanding from the date of issuance of the Total Travel Media shares.
As of January 31, 2018, 10,000,000 shares of series B Preferred Stock were issued and outstanding.
Series C Convertible Preferred Stock
The Company has authorized the issuanceAs of ten million (10,000,000) seriesJuly 31, 2018, there were 3,950,000 shares of our Series C Preferred Stock. The Series C Preferred shares are junior in ranking to the Series A and Series B Preferred shares. The affirmative vote of the holders of Eighty-six percent (86%) of the issued and outstanding shares of Series C Preferred Stock shall be required for the Board of Directors to: (i) declare dividends upon shares of common stock unless the Series C Preferred shares are to receive the same dividend as the common shares, on an as converted basis; (ii) redeem the shares of Series C Preferred Stock at a price of $0.001 per share; (iii) authorize or issue additional or other capital stock that is junior or equal rank to the Series C Preferred shares with respect to the preferences as to distributions and payments upon the liquidation or dissolution and winding up of the Company; and (iv) 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 shall receive out of the assets of the Company the sum of $0.001 per shares before any payment or distribution shall be made on the Common Stock, or any other class of capital stock of the Company ranking junior to the Series C Preferred Stock. For a period of ten (10) years from the date of issuance of shares of Series C Preferred Stock, the holders may elect to convert each share of Series C Preferred Stock into one share of the Company’s Common Stock. Each share of Series C Preferred Stock is entitled to one vote when voting as a class or together with shares of Common Stock.
During the period ended January 31, 2018 we issued 3,680,000 shares of Series C Convertible Preferred Stock for $0.25 per share, for proceeds of $920,000.
As of January 31, 2018, 3,680,000 shares of series C Preferred Stock were issued and outstanding.
Common Stock
TheIn June 2018, the Company has authorized the issuanceissued 600,000 shares of its Class A Common Stock at $0.25 per share, in exchange for proceeds of $150,000, in connection with stock subscription agreements. Under the terms of the subscription agreements, the subscribers also acquired warrants to purchase up to 600,000 additional shares of the Company’s Class A Common Stock. The warrants have a term of five years and have a conversion rate equal to 50% of the average of the closing bid price for the Company’s common stock and Class B common stock. We are authorizedfor the 20-day trading period prior to issue 500,000,000conversion of the warrants.
As of July 31, 2018, there were 56,770,000 shares of our Class A common stock and 10,000,000 shares of Class B common stock, each with a par value of $0.0001 per share. Holders of our Class A common stock and Class B common stock are entitled to dividends when, as and if, declared by our board of directors, subject to the rights of the holders of all classes of
22
stock outstanding having priority rights to dividends. The shares of each class of Common Stock shall be identical except that the holders of the Class B Common Stock shall be entitled to elect a majority of the Board of Directors and the holders of the Class A Common Stock shall elect the remainder of the directors. Each share of Class B Common Stock shall be convertible at any time into one share of Common Stock at the option of the holder. Class A common stock and Class B common stock are referred to as common stock throughout the notes to these financial statements, unless otherwise noted.
On September 26, 2017, the Company issued 1,500,000 shares of Class A common stock for consulting services, valued at $1,042,500.
On May 23, 2017, pursuant to the Share Exchange Agreement (See Note 1), the Company issued 10,000,000 shares of Class B common stock to the stockholders of Total Travel Media in exchange for 10,000,000 shares of Total Travel Media’s common stock, representing 100% of its issued and outstanding common stock. As a result of the reverse acquisition accounting, these shares issued to the former Total Travel Media stockholders are treated as being outstanding from the date of issuance of the Total Travel Media shares.
As of January 31, 2018, there were 54,860,000 shares of Class A common stock and 10,000,000 shares of Class B common stock issued and outstanding, respectively.outstanding.
Shares Subscribed
AsDuring the three months ended of JanuaryJuly 31, 2018, the Company has received stock subscriptions for Series C Convertible Preferred Stock totaling $16,000.its Class A common stock in the total amount of $40,000.
Stock Warrants
On October 6, 2018, we issued 333,333 warrants to purchase up to 333,333 shares of our common stock. The warrants are exercisable into 333,333 shares of common stock, for a period of five years from issuance, at a price of $0.15 per share subject to default provisions. As of January 31, 2018, there were 333,333 warrants outstanding. We accounted for the issuance of Warrants in accordance with ASC 815 (see Note 10).
The following table summarizes information relating to outstanding and exercisable warrants as of JanuaryJuly 31, 2018:
Warrants Outstanding | Warrants Outstanding |
| Warrants Exercisable |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants Outstanding | Warrants Outstanding |
| Warrants Exercisable |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
| Weighted Average Remaining |
| Weighted Average |
|
|
| Weighted Average |
|
|
| Weighted Average Remaining |
| Weighted Average |
|
|
| Weighted Average |
| |||||||||||||||||||||||||||||||||||
Number of Shares | Number of Shares |
| Contractual life (in years) |
| Exercise Price |
| Number of Shares |
| Exercise Price |
| Number of Shares |
| Contractual life (in years) (1) |
| Exercise Price |
| Number of Shares |
| Exercise Price (1) |
| |||||||||||||||||||||||||||||||||||
| 333,333 |
| 4.25 |
| $ | 0.15 |
| 333,333 |
| $ | 0.15 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
5,000,000 | 5,000,000 |
| - |
| $ 0.0001 |
| 5,000,000 |
| $ 0.0001 |
| |||||||||||||||||||||||||||||||||||||||||||||
1,910,333 | 1,910,333 |
| 4.8 |
| $ 0.31 |
| 1,910,000 |
| $ 0.31 |
| |||||||||||||||||||||||||||||||||||||||||||||
| 333,333 |
| 4.2 |
| $ 0.15 |
| 333,333 |
| $ 0.15 |
|
A summary of activity during the period from inception to January 31, 2018 as follows:
|
| Number of Warrants |
| Weighted Average Exercise Price (1) |
| Weighted Average Remaining Term (1) |
Outstanding at April 30, 2018 |
| 6,643,333 |
| $ 0.08 |
| 4.7 |
Granted |
| 600,000 |
| 0.31 |
| 4.9 |
Exercised |
| - |
| - |
| - |
Expired |
| - |
| - |
| - |
Outstanding at July 31, 2018 |
| 7,243,333 |
| $ 0.09 |
| 4.7 |
|
| Warrants Outstanding |
| |||||
|
|
|
|
| Weighted Average |
| ||
|
| Shares |
|
| Exercise Price |
| ||
Balance as of May 5, 2017 |
|
| - |
|
| $ | - |
|
Granted |
|
| 333,333 |
|
|
| 0.15 |
|
Exercised |
|
| - |
|
|
| - |
|
Forfeited/canceled |
|
| - |
|
|
| - |
|
Balance as of January 31, 2018 |
|
| 333,333 |
|
| $ | 0.15 |
|
(1)
In March 2018, the Company granted warrants to purchase 5,000,000 shares of its Series A Preferred Stock which have no expiration date. In April 2018 and June 2018, the Company granted warrants to purchase 1,310,000 shares and 600,000 shares, respectively, of its common stock at a price determined by the average trading price per share of the Company common stock
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NOTE 13 - COMMITMENTS AND CONTINGENCIES
PursuantLease Commitments
In May 2018, Sharing Services entered into an amendment to our 40% equity investmentthe lease agreement covering its corporate headquarters in LEH Insurance GroupPlano, Texas. Under the terms of the amendment, Sharing Services leased additional office space adjacent to its current corporate offices. The incremental rent expense resulting from this amendment is approximately $10,159 per month, subject to customary rent increases in future years.
Acquisition-related Commitments
On May 15, 2018, Legacy Direct Global, LLC. (“Legacy Direct Global”), a Texas limited liability company and a wholly-owned subsidiary of Sharing Services, Sharing Services, and Legacy Direct, LLC. (the “Seller”) entered into an agreement pursuant to which Legacy Direct Global acquired certain assets and operational businesses and assumed certain liabilities of the Seller (the “Agreement”). In connection with the Agreement, Sharing Services has agreed to issue 100,000 restricted shares of its common stock and 900,000 stock warrants. The stock warrants enable the holders to acquire up to 900,000 restricted shares of Sharing Services’ common stock, subject to the achievement by the acquired business of certain specified performance targets over a period of up to three years. The stock warrants have an exercise price per share equal to 50% of the average 10-day trading price of Sharing Services’ common stock. In June 2018, the Company completed the acquisition. The acquisition involved the purchase of assets with a preliminary value of $83,490.
On July 6, 2018, Sharing Services issued a Binding Letter of Intent (the “Hyten LOI”) where Sharing Services expressed its intent to purchase certain operating assets of Hyten Global LLC (“LEHIG”Hyten”), the owner of certain multi-level marketing (“MLM”) businesses operating principally in the United States and Asia. Under the terms of the Hyten LOI, Sharing Services agreed to provide Hyten a temporary cash advance in the amount of $50,000 and the parties entered into negotiations aimed at completing the asset acquisition transaction within 120 days from the effective date of the Hyten LOI. On July 25, 2018, Sharing Services and Hyten entered into an Asset Purchase Agreement pursuant to which Sharing Services agreed to purchase certain operating assets located in Hong Kong, Taiwan, Thailand, Singapore and South Korea from Hyten. As of August 31, 2018, as provided in the LOI, Sharing Services provided cash advances to Hyden in the aggregate amount of approximately $540,000. Under the terms of the Hyten LOI, Hyten has agreed to repay all loans immediately in the event the parties failed to complete the acquisition transaction. Please see Note 15 for more information about Hyten.
Contingencies
Legal Proceedings
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.
Other Contingencies
On October 4, 2017, LEHIG based upon attaining certain benchmarks for booked insurance premiums through December 31,the Company entered into a Share Exchange Agreement pursuant to which it acquired a 25% equity interest in 561 LLC. Pursuant to the terms of the Share Exchange Agreement, in May 2018, the sellerCompany increased its cumulative equity interest in 561 LLC to 40% in exchange for 2,500,000 shares of its Series A Convertible Preferred Stock. Under the LEHIG ownership mayterms of the Share Exchange Agreement, the sellers shall be entitled to an additional 1,000,0002,500,000 shares of our Series A Convertible Preferred Stock when both of the following conditions have been met: (a) one year has passed from the Closing Date and (b) the closing bid price of the Company’s Series A Preferred Stock. As of January 31, 2018,common stock equals or exceeds $5.00 per share, as reported by OTC Markets, Inc. In accordance with GAAP, the Company has not recorded a contingency forliability in connection with this event.contingency.
Pursuant to our 25% equity investment in 561 LLC ("561"), onOn October 4, 2017, if, on October 4,the Company entered into a Share Exchange Agreement pursuant to which it acquired a 25% equity interest in America Approved Commercial LLC (“AAC”). Pursuant to the terms of the Share Exchange Agreement, in May 2018, the Company's common stock has a closing bid priceCompany increased its cumulative equity interest in excessAAC to 40% in exchange for 2,500,000 shares of $5.00 per share,its Series A Convertible Preferred Stock. Under the sellersterms of 561 ownershipthe Share Exchange Agreement, the sellers shall be entitled to an additional 2,500,000 shares of the Company'sCompany’s Series A Preferred Stock. Additionally, at such time as the Company shall be the owner of record of no less than 40%Stock when both of the member interests in each of 561 and it's affiliated Company, America Approved Commercial, LLC ("AAC"),following conditions have been met: (a) one year has passed from the Sellers of 561 ownership shall be entitled to another 2,500,000 shares Closing Date and (b) the closing bid price
17
of the Company's Series A Preferred Stock. As of January 31, 2018,Company’s common stock equals or exceeds $5.00 per share, as reported by OTC Markets, Inc. In accordance with GAAP, the Company has not maderecorded a contingency for these eventsliability in connection with this contingency.
Pursuant to our 25% equity investment in AAC, onOn October 4, 2017, if, on October 4, 2018, the Company's common stock hasCompany entered into a closing bid priceShare Exchange Agreement pursuant to which it acquired a 40% equity interest in excessLEH Insurance Group LLC (“LEHIG”) in exchange for 500,000 shares of $5.00its Series A Preferred Stock with a deem value of $0.25 per share, or $125,000. Under the terms of the Share Exchange Agreement, the sellers of the AAC ownership shall be entitled to an additional 2,500,000500,000 shares of the Company'sCompany’s Series A Preferred Stock. Additionally, at such time asStock when the Company shall be the owner of recordfollowing condition has been met: prior to December 31, 2018, LEHIG has booked contracts representing insurance premiums of no less than 40%$500,000. In addition, under the terms of the member interests in each of AACStakeholder and its affiliated company, 561,Investment Agreement, the sellers of AAC shall be entitled to another 2,500,000an additional 500,000 shares of the Company'sCompany’s Series A Preferred Stock. AsStock when the following condition has been met: prior to December 31, 2018, LEHIG has booked contracts representing insurance premiums of January 31, 2018,no less than $1,000,000. In accordance with GAAP, the Company has not maderecorded a contingency for these events.liability in connection with this contingency.
On January 3, 2018 the Company entered into a 36 month lease for the new corporate offices (See subsequent events Note 14). The total lease commitment is $656,940. The monthly lease expense is $17,336 for the first 12 months.
NOTE 14 - SUBSEQUENT EVENTS
SubsequentIn connection with the Asset Purchase Agreement discussed above, on August 17, 2018, Sharing Services and Hyten entered into an addendum to January 31, 2018,the Asset Purchase Agreement (together with the Asset Purchase Agreement, the “Amended Asset Purchase Agreement”) pursuant to which Sharing Services agreed to purchase operating assets of approximately $2.9 million, consisting primarily of intellectual property (including trade names, website domains and throughmulti-level marketing licenses in several countries), proprietary software, security deposits, computer and office equipment and inventory from Hyten. Under the terms of the Amended Asset Purchase Agreement, Sharing Services also agreed to March 21, 2018,assume up to $570,000 in liabilities of Hyten at the date these financials were approvedtime of the acquisition, subject to be issued, we had the following subsequent events:achievement by the acquired operating assets of certain specified performance targets and to other customary conditions. In connection with the Amended Asset Purchase Agreement, Sharing Services has agreed to issue 1,000,000 restricted shares of its common stock and 900,000 stock warrants. The stock warrants enable the holder to acquire up to 900,000 restricted shares of Sharing Services’ common stock, subject to the achievement by the acquired operating assets of certain specified performance targets over a period of up to three years. The stock warrants have an exercise price per share equal to 50% of the average 10-day trading price of Sharing Services’ common stock.
On February 8,August 3, 2018, the Company closedissued 210,000 shares of its Class A Common Stock, par value of $0.0001, at a lineprice of credit financing transaction whereby$0.25 for a total value of $52,500 in connection with stock subscription agreements entered into prior to April 30, 2018. Under the terms of the subscription agreements, the subscribers also acquired warrants to purchase up to 210,000 additional shares of the Company’s Class A Common Stock. The warrants have a term of five years and have a conversion rate equal to 50% of the average of the closing bid price for the Company’s common stock for the 20-day trading period prior to conversion of the warrants.
On August 17, 2018, the Company borrowed the sumissued 80,000 shares of Two Hundred Fifty Thousand dollars ($250,000.00) from an accredited investor, RB Capital Partners, Inc. (the “ Lender ” ). The transaction involved the issuance byits Series C Convertible Preferred Stock, par value of $0.0001, at a price of $0.25 for a total value of $20,000 in connection with stock subscription agreements entered into prior to April 30, 2018.
On August 20, 2018, the Company issued 1,250,000 shares of its Series A Convertible Preferred Stock, in favorthe aggregate, in connection with its previously disclosed acquisitions of equity interests in 561, LLC and America Approved Commercial LLC. In addition, on August 20, 2018, the LenderCompany issued 250,000 shares of its Series A Convertible Preferred Stock in connection with its previously disclosed acquisition of a Convertible Promissory Note (the “ Note ” )40% equity interests in Medical Smart Care LLC.
On August 28, 2018, the Company issued 104,000 shares of its Class A Common Stock, par value of $0.0001, in exchange for professional services valued at $33,000.
On September 12, 2018, the Company paid $54,997 (including accrued but unpaid interest) to settle in full a convertible note in the principal amount of $250,000.00. The Note accrues interest at$50,000 in the rateordinary course of Twelve percent (12%) per annum with the principal amount and all accrued interest being due and payable on demand y the Lender. At the option of the Lender, the Note is convertible into shares of the Company ’ s common stock at any time following 180 days from its issuance.
On March 1, 2018, Jordan Brock, Robert Oblon, and Frank A. Walters were elected as directors to for a one (1) year term or until their successors are elected and qualified. On March 1, 2018, Jordan Brock, President and Chief Executive Officer of the Company, resigned as President and Chief Executive Officer. On the same date, Mr. Brock was appointed to the position of Vice President of the Company. He remains a director of the Company.
On March 1, 2018, the Board of Directors appointed John (“JT”) Thatch to the position of President, Chief Executive Officer, and a director of the Company.
On March 7th 2018, the Company moved into its new corporate offices. The Company and its wholly owned subsidiaries will now operate at the new address of 1700 Coit Rd. Suite 100, Plano, Texas 75075. This new location is slightly less than 10,000 Sq. Ft. allowing for expansion for the customer service department, product fulfillment, opportunity and training rooms as well as a video production suite.
business.
2418
On March 16, 2018, the Company closed a line of credit financing transaction whereby the Company borrowed the sum of Two Hundred Fifty Thousand dollars ($250,000.00) from an accredited investor, RB Capital Partners, Inc. (the “ Lender ” ). The transaction involved the issuance by the Company in favor of the Lender of a Convertible Promissory Note (the “ Note ” ) in the principal amount of $250,000.00. The Note accrues interest at the rate of Twelve percent (12%) per annum with the principal amount and all accrued interest being due and payable on demand by the Lender. At the option of the Lender, the Note is convertible into shares of the Company ’ s common stock at any time following 180 days from its issuance.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussionsection discusses management’s view of ourthe financial condition as of July 31, 2018, and the results of operations and cash flows for the three months ended July 31, 2018, of Sharing Services, Inc. and consolidated subsidiaries. This section should be read in conjunction with our unaudited condensedthe audited consolidated financial statements of Sharing Services and associatedthe related notes appearing elsewhere in this Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements as a result of various factors, including the risks and uncertainties described under “Risk Factors.”, as set forthincluded in our Annual Report on Form 10-K filedfor the period from May 5, 2017 (inception) to April 30, 2018, and with the SEC on September 11, 2017.
Recapitalization.
Our acquisition of Total Travel Media, Inc., a Nevada corporation (“Total Travel”) discussed below was accounted for as a recapitalization of Total Travel since the shareholders of Total Travel obtained voting and managing control of our Company. Total Travel was the acquirer for financial reporting purposes and Sharing Services, Inc. was the acquired company. Consequently, thecondensed consolidated financial statements after completionincluded elsewhere in this Quarterly Report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations section may contain forward-looking statements. Please see “Cautionary Notice Regarding Forward-Looking Statements” for a discussion of the acquisition include the assetsuncertainties, risks and liabilities of both Sharing Services and Total Travel, the historical operations of Total Travel and their consolidated operationsassumptions associated with these forward-looking statements that could cause results to differ materially from the May 23, 2017 closing date of the acquisition. Total Travel retroactively applied its recapitalization for all periods presentedthose reflected in the accompanying consolidated financialsuch forward-looking statements.
Total Travel was incorporated inHighlights for the State of Nevada on May 5, 2017. Total Travel wasThree Months Ended July 31, 2018:
·
Our consolidated net sales for the surviving company and became a wholly owned subsidiary of Sharing Services. The financial statements reflected in this 10-Q as of Januarythree months ended July 31, 2018 representswere $12.9 million. The Company is an emerging growth company with no significant sales prior to December 2017;
·
Our consolidated gross profit for the three months ended July 31, 2018 was $8.0 million and our consolidated gross margin was 61.6%;
·
For the three months ended July 31, 2018, our consolidated operating earnings were $337,172 compared to an operating loss of $592,213 for the period from May 5, 2017 (date of inception)(inception) to JanuaryJuly 31, 2018.2017;
·
The financial statements included in this report reflect all adjustments, consisting of normal recurring adjustments, whichFor the three months ended July 31, 2018, the changes in the opinionfair value of management are necessaryour derivative liabilities resulted in a net loss of $25,837 compared to $22,004 for fair presentation of the information contained therein.period from May 5, 2017 (inception) to July 31, 2017;
·
Our History.consolidated net loss was $91,251 for the three months ended July 31, 2018, compared to $640,826 for the period from May 5, 2017 (inception) to July 31, 2017. Basic and fully diluted loss per share was $0.0 for the three months ended July 31, 2018, compared to $0.01 for the period from May 5, 2017 (inception) to July 31, 2017;
·
We were incorporated in Nevada on April 24, 2015 underOur consolidated cash used by operating activities was $57,257 for the name Sharing Services, Inc. and were engagedthree months ended July 31, 2018, compared to $323,137 for the period from May 5, 2017 (inception) to July 31, 2017;
·
In May 2018, the Company issued 5,000,000 shares of its Series A Convertible Preferred Stock, in the developmentaggregate, in connection with its previously disclosed acquisitions of equity interests in 561, LLC and America Approved Commercial LLC;
·
During the three months ended July 31, 2018, the Company acquired certain assets and business operations, and assumed certain liabilities, subject to certain performance conditions, of Legacy Direct, LLC;
·
In July 2018, the Company entered into a taxi sharing web application. In early 2017, we proposed expanding our business model into thatBinding Letter of a diversified travel holdings company specializing in ride sharing, mobile applications, Social Travel Alchemy, relationship marketing, group travel programs, brick-and-mortar travel agencies, and vacation funding. The adoption of the new business model was completed when, on May 23, 2017, we completed a reverse merger with Total Travel Media,Intent (the “Hyten LOI”) pursuant to which it intends to purchase certain assets and businesses operations of Hyten Global LLC (“Hyten”), the owner of certain direct selling or multi-level marketing businesses operating principally in the United States and Asia; and
·
During the three months ended July 31, 2018, the Company acquired all of theissued 600,000 shares of capitalits class A Common Stock for proceeds in the amount of $150,000 in connection with stock of Total Travel Media from the holders of such stock, in exchange for the issuance of Ten Million (10,000,000) newly-issued shares of the Company’s Common Class B Stock, par value $0.0001 per share and (ii) Ten Million (10,000,000) newly-issued shares of the Company’s Series B Preferred Stock, par value $0.0001 per share. After the reverse merger, we continued Total Travel’s historical and proposed business.subscription agreements.
Overview
Description of Business Description
Sharing Services, Inc. (“SHRV,” “we” or “the Company”) is a diversified holding company specializing in the direct selling industry. The Company owns, operates, or controls an interest in a variety of companies that either sell products and services to the consumer directly through independent representatives, or offers services that range from manufacturing, processing,health and wellness, energy, technology, insurance services, training, media and travel benefits.
WithThe Company previously developed and marketed a taxi-ride sharing website and application (“web app”). Beginning in February 2017, the acquisitionCompany expanded its business model to also offer a wide range of Total Travel Media, Inc. on May 23, 2017, Sharing Services, Inc. (“Sharing Services”) completed the transition of its principal business operations from that of a taxi sharing web application to a travel and technology management Company utilizing a direct-selling model with a subscription-based vacation portal.
Sharing Services is a diversified travel holdings company specializing in ride sharing, mobile applications, 4.0 meta-search technologies, relationship marketing, group travel programs, and brick-and-mortar travel agencies. The Company’s direct-to-consumer online travel agent (OTA) platform delivers unprecedented access to many of today’s most popular travel destinations, and all with savings of up to 30% and 80% off published rates.
26
The objective of the Company is to scale revenues based on relationship marketing that are proven with the right travel relatedother products and services. Sharing Services will launch a direct selling model with a subscription-based vacation portal accessing the new meta-search 4.0 technology. Includedservices, which are currently in varying planning stages and are expected to be marketed in the subscription will be Vacation Financing options, Seminars on Vacation (called Vacationars) and below published fares with guaranteed lower rates than Expedia.
Metro-search is defined by a “search within a search”. Examples would be Kayak and Trivago, where consumers can search one time and access hundreds of websites. Sharing Services new meta-search 4.0 goes beyond Kayak and Trivago in two important ways: the fares searched (hotels) garner below published pricing and Sharing Services agents fulfill on the travel booked, rather that redirect the chosen result at Kayak for example, to the website the offer was made on. These two differentiators will help Sharing Services travel companies gain market share of travelers from around the world. On February 1,future. In December 2017, the Company launched a wholly-owned subsidiary operating under the trade name “Elepreneurs.” One of Elepreneus’ leading product lines, “Elevate,” consists of
19
Nutraceutical products which the Company terms “D.O.S.E.” (Dopamine, Oxytocin, Serotonin and Endorphins) and was developed and is owned by another of the Company’s wholly-owned subsidiaries, “Elevacity Global.” This product line has accelerated the Company’s growth during the last two quarters of the period from May 5, 2017 (inception) to April 30, 2018.
As part of its (BETA) website.growth strategy, the Company completed a number of significant acquisitions and purchases of equity interest during the period from May 5, 2017 (inception) to the date of this Quarterly Report. Subject to approval by its Board of Directors, the Company intends to continue to make strategic acquisitions of businesses that complement its business competencies and growth strategy to meet or exceed its objectives and create shareholder value. Please see “Liquidity and Capital Resources” below from more information about our recent acquisitions.
Key Industry and Business Trends
Please see “Key Industry and Business Trends” in ITEM 1 of our Annual Report on Form 10-K for the period from May 5, 2017 (inception) to April 30, 2018.
Debt
The Company is an emerging growth company with no material sales prior to December 2017 and has not generated cash from operations. The Company has funded a substantial portion of its liquidity and cash needs through the issuance of debt and equity securities. Please see “Liquidity and Capital Resources” below for more information about the Company’s debt and issuances of equity securities.
Results of Operations for the Period of Inception (May 5, 2017) to January 31, 2018
As the Company was incorporated on May 5, 2017, we do not have historical operations to base current results on. The results related to the current operations do not include historical results of operations for Sharing Services prior to May 23, 2017 when we acquired Total Travel Media as noted above.
OverviewNet Sales
For quarterly periodOur consolidated net sales for the three months ended JanuaryJuly 31, 2018 we had revenues of $960,182, costwere $12.9 million and consisted primarily of sales of $673,551, gross profitsour Elevacity health and wellness product line. Our Elevacity product line was introduced during the second half of $286,631, and operating expenses of $312,083, for an operating loss of $25,452. Our other expenses totaled $3,573,603, giving us a total net loss of $3,599,055.
Sincethe period from May 5, 2017 (inception) through Januaryto April 30, 2018. The Company anticipates its consolidated net sales to grow at a rapid pace during its fiscal year ending April 30, 2019.
Gross Profit
Our consolidated gross profit for the three months ended July 31, 2018 was $8.0 million, and consolidated gross margin was 61.6%. For the three months ended July 31, 2018, our gross margin benefited from economies of scale (as the volume of product shipped increased compared to the preceding quarter) and cost reduction efforts in connection with order-fulfilment operations and back office processes.
Selling and Marketing Expenses
Our consolidated selling and marketing expenses were $6.0 million, or 46.7% of consolidated net sales, for the three months ended July 31, 2018, compared to $288,417 for the period from May 5, 2017 (inception) to July 31, 2017, principally as a result of the increase in sales compared to the prior year quarter. Our consolidated selling and marketing expenses for the three months ended July 31, 2018, consisted principally of sales commissions of $5.7 million and advertising expense. During the first half of our fiscal year ending April 30, 2019, we anticipate selling and marketing expenses to continue to be high as a percentage of net sales. As our sales volume continue to grow, we expect our consolidated selling and marketing expenses to grow at a slower pace than our consolidated net sales.
General and Administrative Expenses
Our consolidated 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) were $1.6 million, or 12.3% of consolidated net sales, for the three months ended July 31, 2018, compared to $303,796 for the period from May 5, 2017 (inception) to July 31, 2017. As our sales volume continue to grow, we expect our consolidated general and administrative expenses to grow at a slower pace than our consolidated net sales.
20
Interest Expense
Consolidated interest expense, including amortization of debt discount of $335,300 and prepayment penalties of $36,734 associated with a convertible note, was $402,586 for the three months ended July 31, 2018, compared to $26,609 for the period from May 5, 2017 (inception) to July 31, 2017 as a result of an increase in convertible notes outstanding. For the three months ended July 31, 2018, interest expense is net of interest income of $8,318.
Net Change in Fair Value of Derivative Liabilities
The net change in the fair value of the derivative liabilities associated with the Company’s convertible notes, stock options and stock warrants outstanding, was a net loss of $25,837 for the three months ended July 31, 2018, compared to $22,004 for the period from May 5, 2017 (inception) to July 31, 2017. The Company accounts for the conversion features of its convertible notes, stock options and stock warrants under ASC 815. Please see Note 9 of the Notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report for more information about the net change in the fair value of the derivative liabilities.
Provision for Income Taxes
The Company is an emerging growth company and, prior to its fiscal quarter ended July 31, 2018, had not generated pre-tax earnings or taxable earnings from its operations. As of the date herein, the ability of the Company to consistently generate future pre-tax earnings or taxable earnings remains uncertain. Accordingly, the Company has had revenues of $960,182, costs of sales of $673,551, gross profits of $286,631, and operating expenses of $2,433,680,not recorded an income tax benefit in its consolidated financial statements for an operating loss of $2,157,049. Our other expenses totaled $4,819,389, giving us a total net loss and accumulated losses since inception of $6,976,438.
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the periods covered in this Quarterly Report.
Operating ExpensesNet Loss and Loss from Operationsper Share
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| Date of Inception | |
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| (May 5, 2017) to | |
| For the Quarter Ended | January 31, | |
| January 31, 2018 | 2018 | |
General and administration | $ 194,201 |
| 288,971 |
Marketing expenses | - |
| 694,207 |
Stock based compensation | - |
| 1,308,948 |
Professional fees | 117,882 |
| 151,554 |
Total Operating Expenses | $ 312,083 |
| 2,443,680 |
DuringAs a result of the Quarterforegoing, for the three months ended JanuaryJuly 31, 2018, our consolidated net loss was $91,251 compared to $640,826 for the period from operationsMay 5, 2017 (inception) to July 31, 2017. Basic and operating expensesfully diluted loss per share was $25,452.
Since inception (Mar 5, 2017) through Januarynil for the three months ended July 31, 2018, our loss from operations and operating expenses were $2,157,049, primarily from marketing expenses of $694,207 and share based compensation of $1,308,948 incurred
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prior to the most recent quarter. The marketing expenses were for payments madecompared to a related party, who was a significant shareholderbasic and now Chairman of the Board of the Company, pursuant to a consulting and marketing agreement dated March 15, 2017, to provide marketing and consulting services, tools, websites, video production and event management services. Stock based compensation is related to the issuance of 1,500,000 shares of common stock, to consultant, at a deemed value of $0.695fully diluted loss per share and the issuance of 1,065,790 shares of Series A Convertible Preferred Stock, to consultants, at a deemed value of $0.25 share.
Other Expenses
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| Date of Inception | |
| For the Quarter Ended | (May 5, 2017) to | |
| January 31, 2018 | January 31, 2018 | |
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Interest expense | $ 118,229 | $ | 241,424 |
Change in fair value of derivative liability | 3,455,374 |
| 4,577,965 |
Total Other Expenses | $ 3,573,603 | $ | 4,819,389 |
For the Quarter ended January 31, 2018, interest expenses consisted of $92,790$0.01 for the amortization of the debt discount on convertible notes and $25,439 for interest expenses on notes payable. The change in fair value of derivative liability represents the day one derivate expense on inception of the convertible notes and warrants of $4,595,778 less a derivative revaluation gain at Januaryperiod from May 5, 2017 (inception) to July 31 2018 of $1,140,404.
Since inception (Mar 5, 2017) through January 31, 2018, interest expenses consisted of $183,300 for the amortization of the debt discount on convertible notes, prepayment penalties of $43,476 and $14,648 for interest expenses on notes payable. The change in fair value of derivative liability represents the day one derivative expense on inception of the convertible notes and warrants of $6,840,064 less a derivative revaluation gain at January 31, 2018 of $2,262,099.2017.
Liquidity and Capital Resources
The following tables present selected financial information onWe 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
At July 31, 2018, cash and cash flows asequivalents were $785,554. Based upon the current level of operations and forinvestments necessary to grow sales volume to reach a break-even point, we anticipate that existing cash balances and funds expected to be generated by operations will likely not be sufficient to meet our working capital requirements, and to fund potential acquisitions and anticipated capital expenditures, including investments in information technology, over the period ended January 31, 2018:next 12 months. Accordingly, we intend to obtain additional financing from time to time through the issuance of equity securities from time to time, principally through the issuance of shares of our Convertible Preferred Stock.
| January 31, | |
| 2018 | |
Current Assets | $ | 930,833 |
Current Liabilities |
| 5,989,362 |
Working Capital Deficiency | $ | 5,058,529 |
Historical Cash Flows
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Historically, our primary sources of cash have been capital transactions involving the issuance of equity securities and debt (Please see “Recent Issuances of Equity Securities” and “Debt” below) and our primary uses of cash were for operating activities, acquisitions and capital expenditures in the ordinary course of our business.
28The following table shows our sources and uses of cash for the three months ended July 31, 2018, compared to the period from May 5, 2017 (inception) to July 31, 2017:
| Three Months Ended July 31, 2018 |
| Period from May 5, 2017 (inception) to July 31, 2017 |
| Increase (Decrease) |
Net cash used by operating activities | $ (57,257) |
| $ (323,137) |
| $ (265,880) |
Net cash provided (used) by investing activities | (118,723) |
| 42,605 |
| 161,328 |
Net cash provided by financing activities | 193,266 |
| 354,349 |
| (161,083) |
Net increase in cash and cash equivalents | $ 17,286 |
| $ 73,817 |
| $ (56,531) |
As of January 31, 2018, our working capital deficiency is primarily a result of currently liabilities from a derivative liability of $5,265,314, convertible notes payable of $82,300 (net of unamortized discount) and notes payable totaling $51,500. Our current assets consisted primarily of cash in the amount of $175,451, accounts receivable of $366,269, and prepaid expenses and deposits of $297,358. We also had inventory of $91,755 at January 31, 2018.
Net Cash Used by Operating Activities
Net cash used inby operating activities during the periodthree months ended JanuaryJuly 31, 2018 was $1,156,392, which consisteddecreased $265,880 to $57,257, compared to the period from May 5, 2017 (inception) to April 30, 2017, mainly due to a decrease of a$549,575 in net loss and incremental amortization of $6,976,438, reduceddebt discount of $312,330 (a non-cash expense). This decrease was partially offset by net non-cash expensesa decrease in stock-based compensation of $6,070213,$258,448 and net changechanges in operating assets and liabilities of $250.967.$349,156.
Net Cash Used by Investing Activities
Net cash used inby investing activities wasduring the result ofthree months ended July 31, 2018 increased $161,328 to $118,723, compared to net cash retainedprovided by investing activities of $42,605 the period from May 5, 2017 (inception) to April 30, 2017. This increase reflects an increase in the mergercapital expenditures of $118,723 and a decrease in net cash acquired in connection with Total Travel Media of $57,605 and less $15,000 paid for an equity investment and investment in Property and Equipment of $43,111acquisitions.
Net Cash Used by Financing Activities
Net cash provided by financing activities during the three months ended July 31, 2018 decreased $161,083 to $193,266, compared to the period from May 5, 2017 (inception) to April 30, 2017. This decrease was mainly due to lower proceeds of $293,500 from issuances of equity securities, partially offset by higher net proceeds onof $133,266 from issuances of promissory notes.
Significant Recent Acquisitions
On May 15, 2018, Legacy Direct Global, LLC. (“Legacy Direct Global”), a Texas limited liability company and a wholly-owned subsidiary of Sharing Services, Sharing Services, and Legacy Direct, LLC. (the “Seller”) entered into an agreement pursuant to which Legacy Direct Global acquired certain assets and operational businesses and assumed certain liabilities of the Seller (the “Agreement”). In connection with the Agreement, Sharing Services has agreed to issue 100,000 restricted shares of its common stock and 900,000 stock warrants, subject to the achievement by the acquired operating business of certain specified performance targets over a period of up to three years. The stock warrants enable the holders to acquire up to 900,000 restricted shares of Sharing Services’ common stock, subject to the achievement by the acquired business of certain specified performance targets over a period of up to three years. The stock warrants have an exercise price per share equal to 50% of the average 10-day trading price of Sharing Services’ common stock. In June 2018, the Company completed the acquisition. The acquisition involved the purchase of assets with a preliminary value of $83,490.
On July 6, 2018, Sharing Services issued a Binding Letter of Intent (the “Hyten LOI”) where Sharing Services expressed its intent to purchase certain operating assets of Hyten Global LLC (“Hyten”), the owner of certain multi-level marketing (“MLM”) businesses operating principally in the United States and Asia. Under the terms of the Hyten LOI, Sharing Services agreed to provide Hyten a temporary cash advance in the amount of $50,000 and the parties entered into negotiations aimed at completing the asset acquisition transaction within 120 days from the effective date of the Hyten LOI. On July 25, 2018, Sharing Services and Hyten entered into an Asset Purchase Agreement pursuant to which Sharing Services agreed to purchase certain operating assets located in Hong Kong, Taiwan, Thailand, Singapore and South Korea from Hyten. As of August 31, 2018, as provided in the LOI, Sharing Services provided cash advances to Hyden in the aggregate amount of approximately $540,000. Under the terms of the Hyten LOI, Hyten has agreed to repay all loans immediately in the event the parties failed to complete the acquisition transaction.
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On August 17, 2018, Sharing Services and Hyten entered into an addendum to the Asset Purchase Agreement (together with the Asset Purchase Agreement, the “Amended Asset Purchase Agreement”) pursuant to which Sharing Services agreed to purchase assets of approximately $2.9 million, consisting primarily of intellectual property (including trade names, website domains and multi-level marketing licenses in several countries), proprietary software, security deposits, computer and office equipment and inventory from Hyten. Under the terms of the Amended Asset Purchase Agreement, Sharing Services also agreed to assume up to $570,000 in liabilities of Hyten at the time of the acquisition, subject to the achievement by the acquired operating assets of certain specified performance targets and to other customary conditions. In connection with the Amended Asset Purchase Agreement, Sharing Services has agreed to issue 1,000,000 restricted shares of its common stock and 900,000 stock warrants. The stock warrants enable the holder to acquire up to 900,000 restricted shares of Sharing Services’ common stock, subject to the achievement by the acquired operating assets of certain specified performance targets over a period of up to three years. The stock warrants have an exercise price per share equal to 50% of the average 10-day trading price of Sharing Services’ common stock.
Subject to approval by its Board of Directors, the Company intends to continue to make strategic acquisitions and purchases of equity interests in business that complement its business competencies and growth strategy. Such acquisitions and purchases of equity interests are expected to be funded with cash and cash equivalents, cash from operations, and the issuance of a convertible notes for $544,000, proceeds from a promissory note from a related partyequity securities and debt. There is no assurance the Company will be able to obtain adequate financing or otherwise complete desirable acquisitions and purchases of $50,000, proceeds fromequity interests.
Recent Issuances of Equity Securities
Common Stock
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In June 2018, the Company issued 600,000 shares of its common stock pursuant to stock subscription agreements, including 490,000 shares under subscription agreements entered into in the three months ended April 30, 2018;
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At July 31, 2018, there were 56,770,000 shares of our Common Stock Class A and issuance10,000,000 shares of Series Cour Common Stock Class B issued and outstanding; and
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In August 2018, the Company issued 210,000 shares of its Class A common stock, par value of $0.0001, at a price of $0.25 for a total value of $52,500 in connection with stock subscription agreements.
Convertible Preferred Stock
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In May 2018, the Company issued 5,000,000 shares of its Series A Convertible Preferred Stock, in the aggregate, in connection with its previously disclosed acquisitions of equity interests in 561, LLC and America Approved Commercial LLC;
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At July 31, 2018, there were 91,694,540 shares of our Series A Convertible Preferred Stock issued and outstanding;
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In August 2018, the Company issued 1,250,000 shares of its Series A Convertible Preferred Stock, in the aggregate, in connection with its previously disclosed acquisitions of equity interests in 561, LLC and America Approved Commercial LLC; and
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In August 2018, the Company issued 250,000 shares of its Series A Convertible Preferred Stock in connection with its previously disclosed acquisition of a 40% equity interests in Medical Smart Care LLC.
Debt
Convertible Notes Payable
Please see Note 8 of the Condensed Notes to Consolidated Financial Statements in ITEM 1 — “Financial Statements” contained elsewhere in this Quarterly Report for $853,500, $849 proceeds from a related party, less a repaymentmore information about our Convertible Notes Payable.
Capital Requirements
During the three months ended July 31, 2018, capital expenditures for property and equipment in the ordinary course of $15,000 on a promissory noteour business were $143,323.
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Contractual Obligations
There were no material changes to our contractual obligations since April 30, 2018, except for (1) the issuances and repayments of convertible notes payable disclosed in Note 8 of $101,000.the Condensed Notes to Consolidated Financial Statements contained elsewhere in this Quarterly Report and (2) the incremental obligation resulting from the August 2018 amendment to the lease agreement covering our corporate headquarters discussed in Note [14] of the Condensed Notes to Consolidated Financial Statements contained elsewhere in this Quarterly Report.
Capital Resources
We currently have limited cash resources on hand and our projected operating expenses and working capital needs exceed our income and cash resources. We do not have sufficient cash to carry out our operations over the next 12 months. As a result, capital raising has been and continues to be essential for our continued operations, ongoing sales and marketing efforts and further development of our business.
Off BalanceOff-Balance Sheet Financing Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitatingAt July 31, 2018 and April 30, 2018, we had no off-balance sheet financing arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engagedthan operating leases incurred in such relationships.
Application of Critical Accounting Policies
We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact on our business operations and any associated risks related to these policies are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported or expected financial results.
In the ordinary course of business, weour business.
Inflation
We believe inflation did not have made a number of estimates and assumptions relating to the reporting ofmaterial effect on our results of operations and financial conditionduring any of the periods presented in the preparation ofthis report.
Critical Accounting Estimates
There have been no material changes to our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
The material estimates for our company are that of the stock-based compensation recorded for preferred stock issued, and the fair value of embedded conversion options that are convertible into a variable amount of shares, and the income tax valuation allowance recorded for deferred tax assets. The fair values of embedded conversion options are determined using the Black-Scholes option pricing model. We have no historical data on the accuracy of these estimates. The estimated sensitivity to change is related to the various variables of the Black-Scholes option pricing model stated below. The specific quantitative variables are included in the notes to the consolidated financial
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statements. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the expected life, dividend yield, expected volatility, and risk-free interest rate weighted-averageor assumptions used for conversion options. Expected volatility for 2017 was estimated using the average historical volatility of our common stock. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the grant date. The expected life of options is based on the life of the instrument on grant date.
Going Concern
These financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. To date the Company has generated $960,182 in revenues from its business operations and has an accumulated deficit of $6,976,438. As of January 31, 2018, the Company had a working capital deficit of $5,058,529. The Company requires additional funding to meet its ongoing obligations and to fund anticipated operating losses. The ability of the Company to continue as a going concern is dependent on raising capital to fund its initial business plan and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company has initiated extensive direct sales and social media marketing which it expects to drive significant sales volume of the Company’s products, and services over the next several months. The Company expects to become profitable and not need additional outside funding once working capital needs have been met. The acceptance of the Company’s marketing efforts is uncertain and therefore, the Company has plans to continue to fund its business by way of private placements, promissory notes, convertible promissory notes and advances from related parties as may be required.
These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Stock-Based Compensation
ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Share-based expense totaled $1,308,948 for the period of inception (May 5, 2017) to January 31,since April 30, 2018.
Convertible Notes
Convertible notes are regarded as compound instruments, consisting of a liability componentAccounting Changes and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized as additional paid-in capital and included in equity, net of income tax effects, and is not subsequently remeasured. After initial measurement, they are carried at amortized cost using the effective interest method.
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Derivative Financial Instruments
The fair value of an embedded conversion option that is convertible into a variable amount of shares and warrants that include price protection reset provision features are deemed to be “down-round protection” and, therefore, do not meet the scope exception for treatment as a derivative under ASC 815 “Derivatives and Hedging”, since “down-round protection” is not an input into the calculation of the fair value of the conversion option and warrants and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The Black-Scholes option valuation model was used to estimate the fair value of the conversion options. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time, of other comparative securities, equal to the weighted average life of the options.
Conversion options are recorded as debt discount and are amortized as interest expense over the life of the underlying debt instrument.
Also, refer to Note 2 - SignificantRecent Accounting Policies and Note 7 - Derivative Liabilities in the unaudited condensed consolidated financial statements that are included in this Report.
Recent accounting pronouncementsPronouncements
For discussion of recently issuedaccounting changes and recent accounting pronouncements, please see Note 2 to the unaudited condensed consolidated financial statements includedof the Condensed Notes to Consolidated Financial Statements in ITEM 1 — “Financial Statements” contained elsewhere in this report.Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting companySmaller Reporting Company, as defined byin Rule 12b-2 of the Exchange Act, and, accordingly, are not required to provide the information required undercalled for by this item.Item.
Item 4. Controls and Procedures.
Disclosure Controls Evaluation and Procedures
Disclosure controlsRelated CEO and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted underCFO Certifications. Our management, with the Securities Exchange Actparticipation of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management including our principal executive officer (“CEO”) and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
In connection with this quarterly report, as required by Rule 15d-15 under the Securities Exchange Act of 1934, we have carried out(“CFO”), conducted an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures. The material weaknessesprocedures as of July 31, 2018.
Certifications of our CEO and our CFO, which are required in our disclosure control proceduresaccordance with Rule 13a-14 of the Exchange Act, are attached as follows:exhibits to this Quarterly Report. This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
1.LackLimitations on the Effectiveness of formal policiesControls. We do not expect that our disclosure controls and procedures necessarywill prevent all errors and all fraud. A system of 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 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 adequately review significant accounting transactions.error or fraud may occur and not be detected.
We utilize a third party independent contractor forScope of the preparationControls Evaluation. The evaluation of our financial statements. Althoughdisclosure controls and procedures included a review of their objectives and design, our implementation of the financial statementscontrols and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactionsprocedures and the accounting treatmenteffect of such transactions. The third partythe controls and procedures on the information generated for use in this Quarterly Report. In the course of the evaluation, we sought to identify whether we had any data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, was being undertaken if needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and
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independent contractor is not involvedprocedures can be reported in our dayQuarterly Reports on Form 10-Q and our Annual Reports on Form 10-K for the period from May 5, 2017 (inception) to day operations and may not be provided information from our management on a timely basis to allow for adequate reporting/consideration of certain transactions.April 30, 2018.
2Conclusions regarding Disclosure Controls. .Audit Committee Based on the required evaluation of our disclosure controls and Financial Expert. We do notprocedures, our CEO and CFO have an audit committee with a financial expertconcluded that, as of July 31, 2018, we maintain disclosure controls and thus,procedures that are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we lackfile or submit under the appropriate oversightExchange Act is recorded, processed, summarized and reported within the financial reporting process.time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
We intend to initiate measures to remediate the identified material weaknesses, including, but not necessarily limited to, the following:
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Changes in Internal Control Overover Financial ReportingReporting.
There were During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f)) during the quarter ended January 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
Currently we are notThe Company from time to time is involved in any pending litigationvarious 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 legal proceeding.cash flows.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 ofPlease refer to information contained in ITEM 1A, RISK FACTORS, contained in our Annual Report on Form 10-K for the Exchange Act and are not requiredperiod from May 5, 2017 (inception) to provide the information required under this item.April 30, 2018.
Item 2. Unregistered Sales of Securities and Use of Proceeds.
(a) Recent Sales of unregistered securities byUnregistered Securities
During the Company during the period covered by this report were disclosed in our Current Reports on Form 8-K filed January 5, 2018 and January 26, 2018, respectively, and as such, are not required to be furnished in this report. In addition, the Company sold additional unregistered securities during the period covered by this report as follows: during the Quarterthree months ended JanuaryJuly 31, 2018, the Company issued 3,680,000 restricted5,000,000 shares of its Series CA Convertible Preferred Stock, $0.001 par value, in connection with its previously disclosed acquisitions of equity interests in 561, LLC and received subscriptions for an additional 64,000 sharesAmerica Approved Commercial LLC. For a period of 10 years from the date of issuance, each share of the Company’s Series CA Convertible Preferred Stock all pursuant to an offering by means of a private placement memorandum. Eachis convertible into one share of the Company’s common stock. The aforementioned salessale of securities werewas made in reliance upon the exemption offered under Section 4(2) of the Securities Act of 1933.
(b) Not applicable
(c) Not applicable
Item 3. Defaults Upon Senior Securities.
NoneNot applicable
Item 4. Mining Safety Disclosures.
NoneNot applicable
Item 5. Other Information.
None(a) Not applicable
(b) Not applicable
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Item 6. Exhibits.
The following exhibits are incorporated into this Form 10-Q Quarterly Report:
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Certificate of Designations of Series B Preferred Stock, which is incorporated herein by reference from Exhibit 3.1.3 to the Company’s Current Report on Form 8-K filed on May 8, 2017 | ||
Certificate of Designations 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 | ||
Convertible Promissory Note dated May 16, 2018 issued by Sharing Service, Inc. in favor of Power UP Lending Group Ltd., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on June 5, 2018 | ||
Convertible Promissory Note dated July 2, 2018 issued by Sharing Service, Inc. in favor of Power UP Lending Group Ltd., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on July 17, 2018 | ||
Share Exchange Agreement dated May 23, 2017 by and between Sharing Service, Inc., Total Travel Media, Inc., and the Equity Holders of Total Travel Media, Inc., which is incorporated herein by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K/A filed on September 21, 2017 | ||
Share Exchange Agreement dated September 29, 2017 by and between Sharing Service, Inc., Four Oceans Holdings, Inc., and the Equity Holders of Four Oceans Holdings, Inc., which is incorporated herein by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on October 5, 2017 | ||
Asset Purchase Agreement dated May 15, 2018 by and between Legacy Direct Global, LLC., Sharing Service, Inc. and Legacy Direct, LLC., which is incorporated herein by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 8, 2018 | ||
Securities Purchase Agreement dated May 16, 2018 by and between Sharing Service, Inc. and Power UP Lending Group Ltd., which is incorporated herein by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 5, 2018 | ||
Securities Purchase Agreement dated July 2, 2018 by and between Sharing Service, Inc. and Power UP Lending Group Ltd., which is incorporated herein by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 17, 2018 | ||
10.6 | Asset Purchase Agreement dated July 25, 2018 by and between Sharing Service, Inc. and Hyten Global, LLC * | |
Rule 13(a)-14(a)/15(d)-14(a) Certification of John Thatch * | ||
Rule 13(a)-14(a)/15(d)-14(a) Certification of Frank A. Walters * | ||
Section 1350 Certification of John Thatch * | ||
Section 1350 Certification of Frank A. Walters * | ||
101 | The following financial information from our Quarterly Report on Form 10-Q for the three months ended July 31, 2018, 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 (v) the Condensed Notes to Consolidated Financial Statements* | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SHARING SERVICES, INC. (Registrant) Date: By: /s/ John Thatch John Thatch President and Director Principal and Executive Officer Date: By: /s/ Frank A. Walters Frank A. Walters Secretary Treasurer and Director Principal Financial Officer Principal Accounting Officer |
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