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 endedended: January 31, 2018September 30, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-205310000-55997
SHARING SERVICES INC.GLOBAL CORPORATION
(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 Road, Suite 290, Plano, Texas | 75075 | |
| (Address of principal executive offices) | (Zip Code) |
1700 Coit Rd., Suite 100, Plano, Texas 75075
(Address of principal executive offices)(Zip Code)(469)304-9400
(714) 203-6717
(Registrant’s telephone number, including area code)
| None | ||
| (Former name, former address and former fiscal year, if changed since last report) | ||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange in which registered | ||
| N/A | N/A | N/A |
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.Yes ☒ No ☐
(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 accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |
| Emerging growth company | ☐ |
[ ] Large accelerated filer [ ] Accelerated filer
[ ] Non-accelerated filer (Do not check if a smaller reporting company)
[X] Smaller reporting company [X] 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)As of November 5, 2021, there were shares of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a courtissuer’s Class A Common Stock outstanding.
(_)Yes (_) No
APPLICABLE ONLY TO CORPORATE ISSUERS:TABLE OF CONTENTS
As of March 23, 2018, there were 54,860,000 shares of class A common stock issued and outstanding and 10,000,000 shares of class B common stock issued and outstanding.
2
TABLE of CONTENTS
| 2 |
In its fiscal year 2021, the Company changed its fiscal year-end from a fiscal year ending on April 30 to a fiscal year ending on March 31. In this Quarterly Report, references to “the Company,” “Sharing Services,” “our company,” “we,” “our,” “ours” and “us” refer to Sharing Services Global Corporation and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.
3
cautionary notice regarding forward-looking statements
Statements in this Quarterly Report and in any documents incorporated by reference herein which are not purely historical, or which depend upon future events, may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “potential,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “will likely,” “would,” or the negative of such words and/or similar expressions. However, not all forward-looking statements contain these words.
Readers should not place undue reliance upon the Company’s forward-looking statements, since such statements speak only as of the date they were made. Such forward-looking statements may refer to events that ultimately do not occur, or may occur to a different extent, or occur at a different time than such forward-looking statements describe. Except to the extent required by federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements contained in this Quarterly Report and in any documents incorporated by reference herein, whether as a result of new information, future events, or otherwise. The Company acknowledges that all forward-looking statements involve risks and uncertainties that could cause actual events and/or results to differ materially from the events and/or results described in the forward-looking statements.
| 3 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
The following condensed consolidated balance sheets as of September 30, 2021, and March 31, 2021, the condensed consolidated statements of operations for the three and six months ended September 30, 2021, and October 31, 2020, and the condensed consolidated statements of cash flows and condensed consolidated statements of stockholders’ equity for the six months ended September 30, 2021, and October 31, 2020, are those of Sharing Services Global Corporation and its subsidiaries.
SHARING SERVICES, INC.
Index to the Unaudited InterimCondensed Consolidated Financial Statements
For the Period from May 5, 2017 (Inception) to January 31, 2018
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| 5 | ||
| 2020 | 6 | ||
| 2020 | 7 | ||
| 8 | |||
| Notes to the |
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4
SHARING SERVICES INC.GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETSHEETS
(Unaudited)
| September 30, 2021 | March 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 28,841,283 | $ | 12,144,409 | ||||
| Trade accounts receivable, net | 1,538,965 | 1,514,359 | ||||||
| Income taxes receivable | 1,974,211 | 1,011,740 | ||||||
| Notes receivable, net | 136,281 | 94,600 | ||||||
| Inventory, net | 5,604,519 | 2,471,310 | ||||||
| Other current assets | 2,506,799 | 2,403,634 | ||||||
| Total Current Assets | 40,602,058 | 19,640,052 | ||||||
| Property and equipment, net | 921,694 | 887,950 | ||||||
| Right-of-use assets, net | 319,517 | 428,075 | ||||||
| Deferred income taxes, net | - | 1,873,170 | ||||||
| Investment in unconsolidated entities | 5,051,970 | - | ||||||
| Intangible assets | 760,299 | 188,567 | ||||||
| Other assets | 98,312 | 219,142 | ||||||
| TOTAL ASSETS | $ | 47,753,850 | $ | 23,236,956 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable, including $164,400 due to a related party | $ | 1,169,030 | $ | 1,295,174 | ||||
| Accrued sales commission payable | 3,841,320 | 4,713,777 | ||||||
| Employee stock warrants liability | 1,390,524 | 3,132,161 | ||||||
| State and local taxes payable | 1,285,999 | 1,048,717 | ||||||
| Note payable | - | 1,040,400 | ||||||
| Accrued and other current liabilities | 3,232,430 | 4,827,414 | ||||||
| Current portion of convertible notes payable, net of unamortized debt discount of $0 at September 30 and $369 at March 31 | 100,000 | 99,631 | ||||||
| Total Current Liabilities | 11,019,303 | 16,157,274 | ||||||
| Deferred income taxes, net | 4,149,937 | - | ||||||
| Convertible notes payable, net of unamortized debt discount of $22,625,191 and deferred financing costs of $2,512,774 at September 30 and unamortized debt discount of $15,238 at March 31 | 4,912,035 | 34,762 | ||||||
| Settlement liability, long term portion | 455,359 | 808,071 | ||||||
| Lease liability, long-term | 31,597 | 77,810 | ||||||
| TOTAL LIABILITIES | 20,568,231 | 17,077,917 | ||||||
| Commitments and contingencies | - | |||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $ par value, shares authorized: | ||||||||
| Series A convertible preferred stock, $ par value, shares designated, shares and shares issued and outstanding at September 30 and March 31, respectively | 310 | 510 | ||||||
| Series B convertible preferred stock, $ par value, shares designated, shares issued and outstanding at September 30 and March 31 | - | - | ||||||
| Series C convertible preferred stock, $ par value, shares designated, shares and shares issued and outstanding at September 30 and March 31, respectively | 322 | 323 | ||||||
| Preferred stock value | ||||||||
| Common Stock, $ par value, Class A shares authorized, shares and shares issued and outstanding at September 30 and March 31, respectively | 18,761 | 16,010 | ||||||
| Common Stock, $ par value, Class B shares authorized, shares issued and outstanding at September 30 and March 31 | - | - | ||||||
| Common stock value | ||||||||
| Additional paid in capital | 71,922,718 | 43,757,768 | ||||||
| Shares to be issued | 12,146 | 12,146 | ||||||
| Accumulated deficit | (44,792,611 | ) | (37,627,718 | ) | ||||
| Cumulative translation adjustments | 23,973 | - | ||||||
| Total Stockholders’ Equity | 27,185,619 | 6,159,039 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 47,753,850 | $ | 23,236,956 | ||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
5
SHARING SERVICES INC.GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONSEARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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| Three Months |
| Date of Inception |
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| Ended |
| (May 5, 2017) to |
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| January 31, |
| January 31, |
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| 2018 |
| 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 | |
| Three Months Ended | Six Months Ended | |||||||||||||||
| September 30, 2021 | October 31, 2020 | September 30, 2021 | October 31, 2020 | |||||||||||||
| Net sales | $ | 9,873,300 | $ | 19,450,347 | $ | 21,084,827 | $ | 41,339,507 | ||||||||
| Cost of goods sold | 2,924,439 | 5,059,607 | 6,278,250 | 10,948,633 | ||||||||||||
| Gross profit | 6,948,861 | 14,390,740 | 14,806,577 | 30,390,874 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing expenses | 5,022,160 | 8,769,088 | 10,172,635 | 18,370,919 | ||||||||||||
| General and administrative expenses | 5,540,701 | 4,689,217 | 10,269,011 | 11,058,487 | ||||||||||||
| Total operating expenses | 10,562,861 | 13,458,305 | 20,441,646 | 29,429,406 | ||||||||||||
| Operating earnings (loss) | (3,614,000 | ) | 932,435 | (5,635,069 | ) | 961,468 | ||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense, net | (3,126,358 | ) | (8,271 | ) | (6,056,372 | ) | (17,399 | ) | ||||||||
| Gain (loss) on employee warrants liability | 646,930 | 2,029,875 | 1,781,100 | 906,375 | ||||||||||||
| Gain on extinguishment of debt | - | - | 1,040,400 | - | ||||||||||||
| Unrealized gain (loss) on investment | 2,114,970 | - | 2,114,970 | - | ||||||||||||
| Other non-operating income (expense), net | 9,559 | (55,000 | ) | (14,046 | ) | (133,822 | ) | |||||||||
| Total other income (expense), net | (354,899 | ) | 1,966,604 | (1,133,948 | ) | 755,154 | ||||||||||
| Earnings (loss) before income taxes | (3,968,899 | ) | 2,899,039 | (6,769,017 | ) | 1,716,622 | ||||||||||
| Income tax provision (benefit) | (1,254,134 | ) | 659,994 | (506,245 | ) | 526,276 | ||||||||||
| Net earnings (loss) | $ | (2,714,765 | ) | $ | 2,239,045 | $ | (6,262,772 | ) | $ | 1,190,346 | ||||||
| Other Comprehensive Income/Loss (net of tax): | ||||||||||||||||
| Currency translation adjustments | (8,230 | ) | - | 23,973 | - | |||||||||||
| Total other comprehensive income | (8,230 | ) | - | 23,973 | - | |||||||||||
| Comprehensive earnings (loss) | (2,722,995 | ) | 2,239,045 | (6,238,799 | ) | 1,190,346 | ||||||||||
| Earnings (loss) per share: | ||||||||||||||||
| Basic | $ | (0.01 | ) | $ | 0.01 | $ | (0.03 | ) | $ | 0.01 | ||||||
| Diluted | $ | (0.01 | ) | $ | 0.01 | $ | (0.03 | ) | $ | 0.01 | ||||||
| Weighted average shares: | ||||||||||||||||
| Basic | 187,567,291 | 203,227,398 | 186,009,840 | 171,497,718 | ||||||||||||
| Diluted | 187,567,291 | 260,855,287 | 186,009,840 | 241,376,383 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
6
SHARING SERVICES INC.GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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| Six Months Ended | ||||||||
| September 30, 2021 | October 31, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net earnings (loss) | $ | (6,262,772 | ) | $ | 1,190,346 | |||
| Adjustments to reconcile net earnings (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 228,294 | 84,601 | ||||||
| Stock-based compensation expense | (1,461,637 | ) | 1,927,980 | |||||
| Deferred income tax benefit | (1,513,672 | ) | (66,622 | ) | ||||
| Amortization of debt discount and other | 4,877,643 | 11,880 | ||||||
| Gain on extinguishment of debt | (1,040,400 | ) | - | |||||
| Loss (gain) on investment and other assets | (1,778,789 | ) | 20,000 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (24,398 | ) | 48,122 | |||||
| Inventory | (3,455,082 | ) | 349,653 | |||||
| Other current assets | 1,797,008 | (536,986 | ) | |||||
| Security deposits | (1,810 | ) | - | |||||
| Accounts payable | (126,488 | ) | (106,867 | ) | ||||
| Income taxes payable | 921,641 | (193,672 | ) | |||||
| Lease liability | (21,946 | ) | - | |||||
| Accrued and other liabilities | (2,297,788 | ) | (6,518,124 | ) | ||||
| Net Cash Used in Operating Activities | (10,160,196 | ) | (3,789,689 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Payments for property and equipment | (209,997 | ) | (546,773 | ) | ||||
| Collection of (payment for) notes receivable, net | (41,682 | ) | 88,047 | |||||
| Payment for acquisition and other | (2,937,000 | ) | (8,400 | ) | ||||
| Net Cash Used in Investing Activities | (3,188,679 | ) | (467,126 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock | 34,625 | 3,019,688 | ||||||
| Repurchase of common stock | - | (899,500 | ) | |||||
| Proceeds from issuance of promissory notes | 30,000,000 | 1,040,400 | ||||||
| Net Cash Provided by Financing Activities | 30,034,625 | 3,160,588 | ||||||
| IMPACT OF CURRENCY RATE CHANGES ON CASH | 11,124 | - | ||||||
| Increase (decrease) in cash and cash equivalents | 16,696,874 | (1,096,227 | ) | |||||
| Cash and cash equivalents, beginning of period | 12,144,409 | 11,742,728 | ||||||
| Cash and cash equivalents, end of period | $ | 28,841,283 | $ | 10,646,501 | ||||
| Supplemental cash flow information | ||||||||
| Cash paid for interest | $ | 32,435 | $ | 3,606 | ||||
| Cash paid for income taxes | $ | 45,312 | $ | 416,093 | ||||
| Supplemented disclosure of non-cash investing and financing activities: | ||||||||
| Stock issued for financing fees and prepaid interest on debt | 5,400,000 | - | ||||||
| Investment origination fee collected in shares of investee stock | 500,000 | - | ||||||
| Settlement obligation satisfied with shares of common stock | $ | - | $ | 400,000 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
7
SHARING SERVICES INC.GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Class A and Class B Common Stock | Additional | Cumulative | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of Shares | Par Value | Number of Shares | Par Value | Number of Shares | Par Value | Number of Shares | Par Value | Paid in Capital | Subscription Receivable | Shares to be Issued | Treasury Stock | Accumulated Deficit | Translation Adjustments | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Balance – March 31, 2021 | 5,100,000 | $ | 510 | - | $ | - | 3,230,000 | $ | 323 | 160,100,769 | $ | 16,010 | $ | 43,757,768 | - | $ | 12,146 | - | $ | (37,627,718 | ) | $ | - | $ | 6,159,039 | ||||||||||||||||||||||||||||||||||
| Common stock issued for cash | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash, shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon settlement of litigation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon settlement of litigation, shares | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock retired | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock retired, shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for deferred financing costs and prepaid interest on debt | - | - | - | - | - | - | 27,000,000 | 2,700 | 6,477,300 | - | (1,080,000 | ) | - | 5,400,000 | |||||||||||||||||||||||||||||||||||||||||||||
| Conversions or retirements of preferred stock | (2,100,000 | ) | (200 | ) | - | - | (10,000 | ) | (1 | ) | 10,000 | 1 | 200 | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock, shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of debt with beneficial conversion feature and in-the-money stock warrant, net of tax | - | - | - | - | - | - | - | - | 21,330,000 | - | - | - | 21,330,000 | ||||||||||||||||||||||||||||||||||||||||||||||
| Expiration of common stock puts | - | - | - | - | - | - | - | - | - | - | 177,879 | - | 177,879 | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | - | - | 280,000 | - | - | - | 280,000 | ||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from common stock warrants exercised | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock warrants exercised | - | - | - | - | - | - | 500,000 | 50 | 77,450 | - | - | - | 77,500 | ||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | - | - | - | - | - | - | - | 23,973 | 23,973 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | - | - | - | - | - | - | - | - | - | - | (6,262,772 | ) | - | (6,262,772 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance – September 30, 2021 | 3,100,000 | $ | 310 | - | $ | - | 3,220,000 | $ | 322 | 187,610,769 | $ | 18,761 | $ | 71,922,718 | - | $ | 12,146 | - | $ | (44,792,611 | ) | $ | 23,973 | $ | 27,185,619 | ||||||||||||||||||||||||||||||||||
Number of Shares | Par Value | Number of Shares | Par Value | Number of Shares | Par Value | Number of Shares | Par Value | Paid in Capital | Subscription Receivable | Shares to be Issued | Treasury Stock | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Class A and Class B Common Stock | Additional | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of Shares | Par Value | Number of Shares | Par Value | Number of Shares | Par Value | Number of Shares | Par Value | Paid in Capital | Subscription Receivable | Shares to be Issued | Treasury Stock | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||
| Balance – April 30, 2020 | 32,478,750 | $ | 3,248 | 10,000,000 | $ | 1,000 | 3,490,000 | $ | 349 | 136,072,386 | $ | 13,607 | $ | 38,871,057 | $ | (114,405 | ) | $ | 11,785 | $ | (1,532,355 | ) | $ | (33,992,697 | ) | $ | 3,261,589 | |||||||||||||||||||||||||||||
| Balance, April 30, 2020 | 32,478,750 | $ | 3,248 | 10,000,000 | $ | 1,000 | 3,490,000 | $ | 349 | 136,072,386 | $ | 13,607 | $ | 38,871,057 | $ | (114,405 | ) | $ | 11,785 | $ | (1,532,355 | ) | $ | (33,992,697 | ) | $ | 3,261,589 | |||||||||||||||||||||||||||||
| Common stock issued for cash | - | - | - | - | - | - | 30,000,000 | 3,000 | 5,397,000 | - | - | - | (2,400,000 | ) | 3,000,000 | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon settlement of litigation | - | - | - | - | - | - | 10,000,000 | 1,000 | 399,000 | - | - | - | - | 400,000 | ||||||||||||||||||||||||||||||||||||||||||
| Preferred stock retired | (5,628,750 | ) | (563 | ) | - | - | - | - | - | - | 563 | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Conversions of preferred stock | (20,750,000 | ) | (2,075 | ) | (10,000,000 | ) | (1,000 | ) | (110,000 | ) | (11 | ) | 30,860,000 | 3,086 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | - | - | - | - | - | - | (17,500,000 | ) | (1,750 | ) | (897,750 | ) | - | - | - | - | (899,500 | ) | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | - | - | 1,186,554 | - | - | - | - | 1,186,554 | ||||||||||||||||||||||||||||||||||||||||||
| Proceeds from common stock warrants exercised | - | - | - | - | - | - | - | - | - | - | 19,688 | - | - | 19,688 | ||||||||||||||||||||||||||||||||||||||||||
| Stock warrants exercised | - | - | - | - | - | - | 7,268,447 | 727 | (575,709 | ) | - | (17,441 | ) | - | - | (592,423 | ) | |||||||||||||||||||||||||||||||||||||||
| Net earnings | - | - | - | - | - | - | - | - | - | - | - | - | 1,190,346 | 1,190,346 | ||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | - | - | - | - | - | - | - | - | - | - | - | - | 1,190,346 | 1,190,346 | ||||||||||||||||||||||||||||||||||||||||||
| Balance – October 31, 2020 | 6,100,000 | $ | 610 | - | $ | - | 3,380,000 | $ | 338 | 196,700,833 | $ | 19,670 | $ | 44,380,715 | $ | (114,405 | ) | $ | 14,032 | $ | (1,532,355 | ) | $ | (35,202,351 | ) | $ | 7,566,254 | |||||||||||||||||||||||||||||
| Balance, October 31, 2020 | 6,100,000 | $ | 610 | - | $ | - | 3,380,000 | $ | 338 | 196,700,833 | $ | 19,670 | $ | 44,380,715 | $ | (114,405 | ) | $ | 14,032 | $ | (1,532,355 | ) | $ | (35,202,351 | ) | $ | 7,566,254 | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2018(Unaudited)
NOTE 1 – NATUREDESCRIPTION OF OPERATIONS AND BASIS OF PRESENTATION
Description of Operations
Sharing Services Inc.Global Corporation and subsidiaries (“Sharing Services”, “we”, “us”, or the “Company”) aims to build shareholder value by developing or investing in innovative emerging businesses that augment the Company’s product and services portfolio, business competencies, and geographic reach. The Company was incorporated on April 24, 2014 in the State of Nevada. The Company’s wholly owned subsidiary, Total Travel Media, Inc. (“Total Travel Media”, or “TTM”), was incorporated on May 5, 2017Nevada 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. TheApril 2015.
In its fiscal year end is 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, 20172021, the Company changed its business model and is nowfiscal year-end from a travel and technology management company. Sharing Services isfiscal year ending on April 30 to a direct-selling modelfiscal year ending on March 31. In connection 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,its change in fiscal year-end, the Company acquired all ofhas decided not to restate the shares of capital stock of Four Oceans frominformation reported for prior accounting periods, because: (a) the holders of such stock (the “Equity-Holders”),Company’s businesses are not inherently seasonal, (b) the change in exchange for the issuance of Seventy-five Million (75,000,000) newly-issued restricted sharesfiscal years did not otherwise materially distort comparability of the Company’s Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”). Followingresults of operations and cash flows, and (c) the closing, Four Oceans operated as a wholly-owned subsidiarycost to restate the data reported for prior periods outweighs the usefulness of such restated data. Accordingly, 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 reportedcondensed consolidated financial statements included herein reflect the results of operations and cash flows for the period in a manner similarsix months ended September 30, 2021 (183 days) compared 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. six months ended October 31, 2020 (184 days).
The Company, has presented earnings per share based onthrough its subsidiaries, aims to further develop and operate a multi-platform business, including: (a) the new parent company shares issuedCompany’s current health and wellness products businesses, (b) a subscription-based travel services business in the U.S. and international geographies under the banner Hapi Travel TM, (c) the operation and franchising of Hapi Cafe TM innovative destination cafes in North America, and (d) investing from time to time in emerging businesses, using a combination of debt and equity financing, in efforts to leverage the former shareholdersCompany’s business competencies and to participate in these businesses’ growth.
Health and Wellness Products - The Company’s subsidiaries operating in the health and wellness products industry, which accounted for substantially all the Company’s consolidated net sales during the periods included in this Quarterly Report, market their products primarily through an independent sales force, using a direct selling business model under the proprietary brand “The Happy Co.”. Currently, The Happy Co. TM markets and distributes its health and wellness products primarily in the United States, Canada, the Republic of Korea, and other countries in the Asia Pacific region. In addition, certain of the Company.Company’s domestic subsidiaries market its health and wellness products on a “not-for-resale” basis to consumers in other countries outside the U.S.
Share ExchangeSubscription-Based Travel Services - Through its subsidiary, Hapi Travel Destinations, the Company is preparing to launch a subscription-based travel services business under the proprietary brand “Hapi Travel.” The Hapi Travel TM services are designed to offer the opportunity to travel to destinations in the U.S. and Reorganizationabroad to people of all ages, demographics, and economic backgrounds. Hapi Travel TM will also provide entrepreneurial opportunities to its subscribers by capitalizing on both the direct selling model and the retail travel business model.
Company-Owned and Franchised Destination Cafes – Total Travel Media, Inc.
On May 23, 2017, Sharing Services Inc.,recently entered into a Share Exchange AgreementLetter of Intent (the “Agreement”“LOI”) to acquire the exclusive franchise rights in North America to the brand “Hapi Café” from Hapi Café, Inc, a company affiliated with Total Travel Media, Inc. On May 23, 2017, there wasHeng Fai Ambrose Chan, a ClosingDirector of the transaction (the “Closing Date”). PursuantCompany, subject to formalization of a Master Franchise Agreement. Under the proposed terms, Sharing Services, directly or through its subsidiaries, will operate no less than five (5) corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the LOI and the ultimate Master Franchise Agreement. Each corporate-owned or franchised Hapi Café TM store will offer to customers and Brand Partners seeking a healthier lifestyle: (a) a selection of the Agreement,functional and healthy food and beverages, (b) a pleasant workspace with free Wi-Fi service, (c) extensive physical fitness, nutrition management and personal workout print and video content, and (d) our Hapi Travel TM subsidiary’s proprietary travel services.
Targeted Ownership Interests – Directly or through its subsidiaries, the Company acquired allfrom time to time will invest in emerging businesses, using a combination of debt and equity financing, in efforts to leverage the shares of capital stock of TTM from the holders of such stock (the “Equity-Holders”),Company’s resources and business competencies and to participate in exchange for the issuance of Ten Million (10,000,000) newly-issued sharesthese businesses’ growth. As part of the Company’s Common Class B Stock, par value $0.0001 per sharecommitment to these emerging businesses’ success, the Company, directly or through its subsidiaries, also offers non-traditional inventory financing, equity or debt financing, order fulfillment and (ii) Ten Million (10,000,000) newly-issued shareslogistic, CRM “Back Office” solutions, and other success-critical services to these businesses.
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Basis 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.Presentation
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 historicalcondensed consolidated interim financial statements prior to the acquisition are those of the accounting acquirer, Total Travel Media, andincluded herein 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,
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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.
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 are 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.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The preparation of financial statements in conformityaccordance with accounting principles generally accepted in the United States (“GAAP”) requires managementand pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted as permitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to make estimatesthe information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and assumptions that affectnotes thereto included in the Company’s Transition Report on Form 10-K for the transition period ended March 31, 2021. Unless so stated, the disclosures in the accompanying condensed consolidated financial statements do not repeal the disclosures in our consolidated financial statements for the transition period ended March 31, 2021.
During the 11-month transition period ended March 31, 2021, and the six months ended September 30, 2021, consolidated net loss was $1,235,021 and $6,262,772, respectively. During the 11-month transition period ended March 31, 2021, and the six months ended September 30, 2021, consolidated cash used in operating activities was $1,566,970 and $10,160,196, respectively. As of September 30, 2021, consolidated cash and cash equivalents are $28,841,283. In the near term, the Company anticipates continuing to use operating cash due to: (i) a sustained reduction in sales; (ii) investments in new geographic markets, new lines of business, and new products, and (iii) costs associated with the reported amountsdue diligence of purchasing strategic assets and liabilities, (ii)companies. The Company believes that funds from the disclosure$30 million convertible loan received from Decentralized Sharing Systems, Inc. on April 5, 2021 (see Note 6 below), provides the Company with sufficient liquidity to sustain the Company’s plans and operations at current levels over the next twelve months.
The accompanying condensed consolidated financial statements include the accounts of contingent assetsthe Company and liabilities knownits subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to existthe prior year data to conform to the current period’s presentation, primarily consisting, as of March 31, 2021, reclassification of the dateliability associated with uncertain tax positions of $904,643 and, for the financial statements are published,six months ended October 31, 2020, reclassification of the gain on employee warrants liability of $906,375.
Correction of Errors
In the three months ended January 31, 2021, the Company identified two errors in amounts previously reported in its Quarterly Report on Form 10-Q for the interim periods ended July 31, 2020, and (iii)October 31, 2020, concerning the reported amount of net revenuesmethod used to capitalize work-in-progress for projects and expenses recognized during the periods presented. Adjustments made with respecterrors in its stock-based compensation expense related to the use of estimates often relate to improved information not previously available.
Uncertainties with respect to such estimates and assumptions are inherentemployment contracts. Accordingly, in the preparationthree months ended January 31, 2021, the Company made the following corrections to previously reported amounts:
Capitalization of financial statements; accordingly, actual results could differ from these estimates.
Costs for Ongoing Projects and Development of a New Business Brand. - In managements’ opinion, all adjustments (consistingthe fiscal quarter ended January 31, 2021, the Company capitalized costs incurred in connection with ongoing upgrades to its information technology systems, the development of normal recurring accruals) considered necessary for a fair presentationthe new business brand “The Happy Co” and office renovations, in the aggregate, of $816,116. Of this amount, $58,038 should have been included.capitalized in the quarter ended July 31, 2020, and $469,219 should have been capitalized in the quarter ended October 31, 2020.
Stock-based Compensation Expense - In the fiscal quarter ended January 31, 2021, the Company conducted a detailed review of the terms and conditions of stock warrants awarded to its employees in connection with employment agreements. As a result of this review, the Company concluded that stock-based compensation expense reported in the quarter ended July 31, 2020, was understated by approximately and stock-based compensation expense reported in the quarter ended October 31, 2020, was overstated by .
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The after-tax impact on previously reported Net Earnings for the affected periods indicated is:
SCHEDULE OF PREVIOUSLY REPORTED NET EARNINGS
For the Three Months Ended October 31, 2020 | For the Six Months Ended October 31, 2020 | |||||||
| Net Earnings – As Reported | 1,851,356 | 757,979 | ||||||
| Adjustments (net of applicable tax): | ||||||||
| Capitalized Projects | 306,708 | 356,972 | ||||||
| Stock-based Compensation Expense | 80,981 | 75,394 | ||||||
| Total Adjustments | 387,689 | 432,366 | ||||||
| Net Earnings – As Corrected | 2,239,045 | 1,190,345 | ||||||
The Company has identified the impacted internal controls for both errors and has implemented additional internal controls in order to assess and mitigate the risk of error in the future.
Use of Estimates and Assumptions
The preparation of financial statements in accordance with accounting principles generally accepted inGAAP requires the United Statesuse of judgment and requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and liabilitiesexpenses, and disclosures ofabout contingent assets and liabilities, atif any. Matters that require the dateuse of estimates and assumptions include: the recoverability of notes and accounts receivable, the valuation of inventory, the useful lives of fixed assets, the assessment of long-lived assets for impairment, the nature and timing of satisfaction of performance obligations resulting from contracts with customers, allocation of the financial statements, andtransaction price to multiple performance obligations in a sales transaction, the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions about the valuationmeasurement and recognition of right-of-use assets and related lease liabilities, the valuation of stock-based compensation expense,awards, the valuationmeasurement and recognition of derivative liability,uncertain tax positions, and the valuation allowance for deferred tax assetsof loss contingencies, if any. Actual results may differ from these estimates in amounts that are material to our consolidated financial statements. We believe that the estimates and useful lifeassumptions used in the preparation of fixed assets.
Principles of Consolidation
For January 31, 2018, the unauditedour consolidated financial statements of theare reasonable.
Cash, Cash Equivalents, and Restricted Cash
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 asconsiders all highly liquid short-term investments with original maturities of 90 daysthree months or less. As of January 31, 2018 theless to be cash equivalents. The Company hadincludes in its consolidated 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 with 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 levels of the fair value hierarchy during the period of inception (May 5, 2017) to January 31, 2018.
Fair value of financial instruments
The Company’s financial instruments consist primarily of cash, accounts payable 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.
The following table summarizes fair value measurements by level at January 31, 2018 measured at fair value on a recurring basis:
January 31, 2018 |
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| Level 2 |
| Level 3 |
| Total |
Derivative liabilities |
| $ | - | $ | - | $ | 5,265,314 | $ | 5,265,314 |
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for 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 may 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 providedreceivables due to the short period that the products 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 shipped and services are complete.
Deferred Revenue
At January 31, 2018, the Company had advances from customers of $128,851. Advances from customers are a component of deferred revenue in 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 productsits merchant processors, which are recognized over the succeeding twelve months.
Cost 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 recoveredsettled within 24 to 72 hours. At September 30, 2021, and March 31, 2021, such credit card receivables were $3,702,567 and $6,225,139, respectively. In addition, as of September 30, 2021, and March 31, 2021, cash and cash equivalents held in bank accounts in foreign countries in the ordinary course of business were $2,288,156and $1,612,026, respectively. Amounts held by merchant processors or settled.held in bank accounts located in foreign countries are generally not insured by any federal agency.
Inventory
Inventory consists of finished goods and promotional materials and are stated at the lower of cost, determined using the first-in, first-out (“FIFO”) method, or net realizable value. The Company periodically assesses its consolidated inventory levels when compared to current and anticipated sales levels. During the six months ended September 30, 2021, and October 31, 2020, the Company recognized a consolidated provision for excess (slow-moving) or obsolete inventory of $336,181 and $42,609, respectively, in connection with health and wellness product of certain Company subsidiaries that is damaged, expired or otherwise in excess of forecasted outputs, based on its current and anticipated sales levels. The Company reports its provisions for inventory losses in cost of goods sold in its consolidated statements of operations.
Note Payable
In May 2020, Sharing Services was granted a loan (the “PPP Loan”) by a commercial bank in the amount of approximately $1.0 million, pursuant to the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”).
At March 31, 2021, loan principal in the amount of approximately $1.0 million was outstanding. The Company’s borrowings under the PPP Loan were eligible for loan forgiveness under the provisions of the CARES Act. In June 2021, the Company was formally notified by the lender that the Company’s obligations under the loan were forgiven effective May 25, 2021. The loan forgiveness applied to all principal and interest accrued through the loan forgiveness effective date. The Company recognized a gain on extinguishment of debt of $1,040,400 in connection with such loan forgiveness.
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Foreign Currency Translation
Prior to April 1, 2021, substantially all consolidated revenues and expenses were denominated in U.S. dollars. As part of our growth initiatives, we are in the process of expanding operations outside the United States. The functional currency of each of our foreign operations is generally their respective local currency. Balance sheet accounts are translated into U.S. dollars (our reporting currency) at the rates of exchange in effect on deferred tax assets and liabilities of a change in tax rates is recognized inat the balance sheet date, while the results of operations and cash flows are generally translated using average exchange rates for the periods presented. Individually material transactions, if any, are translated using the actual rate of exchange on the transaction date. The resulting translation adjustments are reported in cumulative translation adjustments in our consolidated balance sheets.
Comprehensive Income
For the three and six months ended September 30, 2021, the Company’s consolidated comprehensive income was comprised of currency translation adjustments and net earnings (loss). Prior to April 1, 2021, the only component of the Company’s comprehensive income was its net earnings (loss).
Revenue Recognition
The Company’s subsidiaries operating in the health and wellness products industry, which accounted for substantially all the Company’s consolidated net sales during the periods included in this Quarterly Report, market their products primarily through an independent sales force, using a direct selling business model under the proprietary brand “The Happy Co.”. As of September 30, 2021, and March 31, 2021, consolidated deferred sales revenue associated with product invoiced but not received by customers at the balance sheet date was $346,448and $1.2 million, respectively. In addition, as of September 30, 2021, and March 31, 2021, consolidated deferred sales revenue associated with unfulfilled performance obligations for services offered on a subscription basis was $90,398 and $153,216, and consolidated deferred sales revenue associated with performance obligations for customers’ right of return was $67,378 and $95,780, respectively. Deferred sales revenue is expected to be recognized over one year.
During the six months ended September 30, 2021, no individual customer, or affiliated group of customers, represents 10% or more of consolidated net sales, and approximately 69% of consolidated net sales were to consumers (including 32% to recurring customers, which we refer to as “SmartShip” sales, and approximately 37% to new customers) and approximately 31% of consolidated net sales were to independent distributors.
During the six months ended September 30, 2021, and October 31, 2020, approximately 84% and 94%, respectively, of consolidated net sales were to customers and/or independent distributors located in the United States. No other country accounted for 10% or more of consolidated net sales.
During the six months ended September 30, 2021, approximately 99% of consolidated net sales are from health and wellness products (including approximately 42% from the sale of Nutraceutical products, 28% from the sale of coffee and other functional beverages, 14% from the sale of weight management products, and approximately 15% from the sale of all other health and wellness products). During the six months ended October 31, 2020, approximately 99% of consolidated net sales are from the sale of health and wellness products (including 57% from the sale of Nutraceutical products, 29% from the sales of coffee and other functional beverages, and 13% from the sale of all other health and wellness products). See Description of Operations above.
During the six months ended September 30, 2021, approximately 55% of consolidated product purchases were from a third-party manufacturer based in the U.S., while 45% of consolidated product purchases were from a related-party supplier located in the Republic of Korea. During the six months ended October 31, 2020, product purchases from a third-party manufacturer (the same U.S.-based supplier discussed in the preceding sentence) accounted for approximately 98% of total consolidated product purchases.
Sales Commissions
The Company’s subsidiaries recognize sales commission expense, which is included in selling and marketing expenses in our consolidated statements of earnings and comprehensive income, when incurred, in accordance with GAAP. During the three months ended September 30, 2021, and October 31, 2020, consolidated sales commission expense was $4.9 million and $8.6 million, respectively, and during the six months ended September 30, 2021, and October 31, 2020, $9.9 million and $18.1 million, respectively.
Recently Issued Accounting Standards - Recently Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12, among other things, (a) eliminates the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income (or a gain) from other items, (b) eliminates the exception to the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss for the year, (c) requires than an entity recognize a franchise tax (or a similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, and (d) requires than an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation for the interim period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely thanThe Company adopted ASU 2019-12 effective April 1, 2021, and adoption did not that the value of such assets will be realized.have a material impact on its consolidated financial statements.
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Recently Issued Accounting Standards - Pending Adoption
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain convertible instruments. Among other things, under ASU 2020-06, the embedded conversion features no longer must be separated from the host contract for convertible instruments with conversion features not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital. ASU 2020-06 also eliminates the use of the treasury stock method when calculating the impact of convertible instruments on diluted Earnings per Share. For the Company, the provisions of ASU 2020-06 are effective for its fiscal quarter beginning on April 1, 2024. Early adoption is permitted, subject to certain limitations. The Company usesis evaluating 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 weightpotential impact of available evidence indicates it is more likely than not, that the position will be sustainedadoption 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.its consolidated financial statements.
Basic incomeWe calculate basic earnings (loss) per share is computed by dividing net incomeearnings (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 is calculated similarly but reflects the potential dilution that could occur ifimpact of shares issuable upon the conversion or exercise of outstanding convertible preferred stock, options,convertible notes payable, stock warrants, and other commitments to issue common stock, were exercised or equity awards vest resulting inexcept where the impact would be anti-dilutive.
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issuanceThe calculation of common stock that coulddiluted earnings per share inalso reflects an adjustment to net earnings for the earningspotential reduction to a reporting period’s interest expense, net of applicable income tax, which would result if the Company. There wereCompany’s convertible notes payable were converted at the beginning of such reporting period.
SCHEDULE OF COMPUTATIONS OF BASIC AND DILUTED EARNINGS PER SHARE
| September 30, 2021 | October 31, 2020 | September 30, 2021 | October 31, 2020 | |||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| September 30, 2021 | October 31, 2020 | September 30, 2021 | October 31, 2020 | |||||||||||||
| Net earnings (loss), as reported | $ | (2,714,765 | ) | $ | 2,239,045 | $ | (6,262,772 | ) | $ | 1,190,345 | ||||||
| After tax interest adjustment | - | 6,354 | - | 11,594 | ||||||||||||
| Net earnings (loss), if-converted basis | $ | (2,714,765 | ) | $ | 2,245,399 | $ | (6,262,772 | ) | $ | 1,201,939 | ||||||
| Weighted average basic shares | 187,567,291 | 203,227,398 | 186,009,840 | 171,497,718 | ||||||||||||
| Dilutive securities and instruments: | ||||||||||||||||
| Convertible preferred stock | - | 18,476,413 | - | 31,304,851 | ||||||||||||
| Convertible notes | - | 10,406,100 | - | 10,406,100 | ||||||||||||
| Stock options and warrants | - | 28,745,376 | - | 28,167,714 | ||||||||||||
| Weighted average diluted shares | 187,567,291 | 260,855,287 | 186,009,840 | 241,376,383 | ||||||||||||
| Earnings (loss) per share: | ||||||||||||||||
| Basic | $ | (0.01 | ) | $ | 0.01 | $ | (0.03 | ) | $ | 0.01 | ||||||
| Diluted | $ | (0.01 | ) | $ | 0.01 | $ | (0.03 | ) | $ | 0.01 | ||||||
SCHEDULE OF POTENTIALLY DILUTIVE INSTRUMENTS OUTSTANDING
| September 30, 2021 | ||||
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Convertible notes payable |
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| Total potential incremental shares |
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Diluted loss per share is the same as basic loss per share during periods where net lossesThe preceding table does not include 4,250,000 and 19,450,000 stock warrants held by employees which 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 Standards
In November 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-14, “Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605),not vested (or exercisable) at September 30, 2021, and Revenue from Contracts with Customers (Topic 606).” ASU 2017-14 includes amendments to certain SEC paragraphs within the FASB Accounting Standards Codification (Codification). ASU 2017-14 amends the Codification to incorporate the following previously issued guidance from the SEC. ‘The amendments in ASU No. 2017-14 amends the Codification to incorporate SEC Staff Accounting Bulletin (SAB) No. 116 and SEC Interpretive Release 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.
In February 2017, the FASB has issued Accounting Standards Update (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 clarify that a financial asset is 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 of 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 subsidiaries 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, 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.October 31, 2020, respectively.
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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 in fiscal years beginning after December 15, 2019. Early 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 does not anticipate the adoption of ASU 2017-04 will have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, 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’s consolidated financial statements.
NOTE 3 – ACCOUNTS RECEIVABLEINVENTORY
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 noCompany provides an allowance for doubtful accounts was required at Januaryany slow-moving or obsolete inventory. Inventory consists of the following:
SCHEDULE OF INVENTORY
| September 30, 2021 | March 31, 2021 | |||||||
| Finished Goods | $ | 5,889,299 | $ | 2,556,368 | ||||
| Allowance for inventory obsolescence | (284,780 | ) | (85,058 | ) | ||||
| Inventory, net | $ | 5,604,519 | $ | 2,471,310 | ||||
The increase in finished goods as of September 30, 2021, compared to as of March 31, 2018 2021, reflects the inventory of our South Korean subsidiary, which started selling product in June 2021, of $2.0 million.
NOTE 4 – PREPAID EXPENSES AND DEPOSITSOTHER CURRENT ASSETS
Prepaid expenses and deposits consistedOther current assets consist of the following at January 31, 2018:following:
| January 31, 2018 | |
Prepaid expenses | $ | 57,910 |
Vendor deposits |
| 210,287 |
Security deposit |
| 29,161 |
| $ | 297,358 |
SCHEDULE OF OTHER CURRENT ASSETS
| September 30, 2021 | March 31, 2021 | |||||||
| Prepaid interest, related party | $ | 1,229,589 | $ | - | ||||
| Inventory-related deposits | 405,179 | 1,845,722 | ||||||
| Employee advances | 145,751 | 320,631 | ||||||
| Prepaid expenses and other | 726,280 | 237,281 | ||||||
| Other Current Assets | $ | 2,506,799 | $ | 2,403,634 | ||||
Prepaid expenses consist of payments for goodsNOTE 5 – INVESTMENT IN UNCONSOLIDATED ENTITIES
In September 2021, the Company, Stemtech Corporation (“Stemtech”) and servicesGlobe Net Wireless Corp. (“GNTW”) entered into a Securities Purchase Agreement (the “SPA”) pursuant to which will be consumedthe Company invested $1.4 million in Stemtech in exchange for: (a) a Convertible Promissory Note in the Company’s operationsamount of $1.4 million in favor of the Company (the “Convertible Note”) and (b) a detachable Warrant to purchase shares GNTW common stock (the “GNTW Warrant”). Stemtech is a subsidiary of GNTW. As an inducement to enter into the SPA, GNTW agreed to pay to the Company an origination fee of $500,000, payable in shares of GNTW’s common stock. The Convertible Note matures on September 9, 2024, bears interest at the annual rate of 10%, and is convertible, at the option of the holder, into shares of GNTW’s common stock at a conversion rate calculated based on the closing price per share of GNTW’s common stock during the 30-day period ended September 19, 2021. The GNTW Warrant expires on September 13, 2024 and conveys the right to purchase up to million shares of GNTW’s common stock at a purchase price calculated based on the closing price per share of GTNW’s common stock during the 10-day period ended September 13, 2021. In September 2021, GNTW issued to the Company shares of its common stock, or less than 1% of the shares of GNTW then issued and outstanding, in payment of the origination fee.
The Company carries its investment in the next operating cycle.Convertible Note, the GNTW Warrant and the shares of GNTW common stock at fair value in accordance with GAAP. During the three months ended September 30, 2021, the Company recognized unrealized gains, before income tax, of $1,655,218in connection with its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock.
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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.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at January 31, 2018:
| January 31, | |
| 2018 | |
Furniture and fixtures | $ | 18,928 |
Office and computer equipment |
| 28,178 |
Accumulated depreciation |
| (933) |
Property and equipment, net | $ | 46,173 |
The depreciation expense for the period from inception to January 31,2018 was $800.
NOTE 6 – EQUITY INVESTMENTS
212 Technologies, LLC
On May 21, 2017,In September 2021, the Company entered into a transaction wherebyMembership Unit Purchase Agreement pursuant to which the Company will acquireacquired a Forty-eight percent (48%)30.75% equity interest in 212 Technologies, LLC,MojiLife, LLC., a Montana limited liability company (“212 Tech”),organized in the State of Utah, in exchange for 15,628,750 shares$1,537,000. MojiLife is an emerging growth distributor of technology-based consumer products for the home and car. MojiLife’s products include esthetically attractive, cordless scent diffusers for the home or for the car, as well as proprietary home cleaning products and accessories.
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Investment in unconsolidated entities consists of the Company’s Series A Convertible Preferred Stockfollowing:
SUMMARY OF INVESTMENT IN UNCONSOLIDATED ENTITIES
| September 30, 2021 | March 31, 2021 | |||||||
| Investment in Stemtech convertible note | $ | 764,084 | $ | - | ||||
| Investment in MojiLife, LLC | 1,537,000 | - | ||||||
| Investment in detachable GNTW stock warrant | 2,478,000 | - | ||||||
| Investment in GNTW common stock | 272,886 | - | ||||||
| Investment | $ | 5,051,970 | $ | - | ||||
NOTE 6 – ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and cash in the amount of $100,000. 212 Technologies, LLC is a developer of end-to-end online marketing and direct sales software systems. Initially, the Company will acquire a Twenty-four percent (24%) interest in exchange for 5,628,750 sharesother current liabilities consist of the Company’s Series A Convertible Preferred Stockfollowing:
SUMMARY OF ACCRUED AND OTHER CURRENT LIABILITIES
| September 30, 2021 | March 31, 2021 | |||||||
| Deferred sales revenues | $ | 504,223 | $ | 1,449,359 | ||||
| Liability associated with uncertain tax positions | 921,977 | 904,643 | ||||||
| Accrued severance expense | - | 700,000 | ||||||
| Payroll and employee benefits | 573,229 | 523,454 | ||||||
| Settlement liability, current portion | 352,306 | 376,921 | ||||||
| Lease liability, current portion | 287,921 | 373,398 | ||||||
| Other operational accruals | 592,774 | 499,639 | ||||||
| Accrued and other current liabilities | $ | 3,232,430 | $ | 4,827,414 | ||||
Lease liability, current portion, represent obligations due withing one year under operating leases for office space, automobiles, and cash. The Stakeholder and Investment Agreement dated May 21, 2017 also provides for the acquisition by the Company of the remaining twenty-four percent (24%) interest in 212 Tech at a future date in exchange for an additional 10,000,000 shares of the Company’s Series A Preferred Stock, when the following milestones have been reached: (i) One year has passed from the original MOU; and (ii) the price per share of the Company’s common stock is quoted at $10.00 or more. The Company, in exchange, received a non-exclusive, non-royalty bearing, perpetual, worldwide license of all of the Intellectual Property Rights developed and held by 212 Tech.office equipment.
The Company acquired a 24% interest in 212 Tech by paying $25,000 in cash, leaving a payable of $75,000, and issuing 5,628,750 shares of Series A Convertible Preferred Stock, with a deemed value of $0.25 per share or $1,407,188. As of January 31, 2018, we recorded $1,507,188 as an investment at cost.
561 LLC
The Company acquired a 25% interest in 561 LLC by agreeing to issue 2,500,000 shares of Series A Convertible Preferred Stock, with a deemed value of $0.25 per share or $625,000. The shares are to be issued to the 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.
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 both of the following conditions have been met: (a) Following the first year’s anniversary of 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
The Company acquired a 25% interest in America Approved Commercial LLC by issuing 2,500,000 shares of Series A Convertible Preferred Stock, with a deemed value of $0.25 pure share or $625,000. The Company issued 625,000 shares during the period ended January 31, 2018. As of January 31, 2018, we recorded $ 312,500 as an investment at cost for the first installment of 625,000 shares issued.
The AAC 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 both of the following conditions have been met: (a) Following the first year’s anniversary of 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.
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
The Company acquired a 40% interest in Medical Smart Care LLC for 1,000,000 shares of Series A Convertible Preferred Stock, with a deem value of $0.25 pure share or $250,000. The shares are to be issued to the Medical Smart Care Equity-holder as follows: 250,000 shares issued within 5 days of the closing date and 250,000 shares issued on or before December 31, 2017. These 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 Shares are to be issued on or before August 31, 2018. As of January 31, 2018, we recorded $125,000 as an investment at cost for the installments of 500,000 shares issued.
LEH Insurance Group LLC
The Company acquired a 40% interest in LEH Insurance Group LLC (“LEHIG”) by issuing 500,000 shares of Series A Convertible Preferred Stock, with a deem value of $0.25 pure share or $125,000. As 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-Holder shall be entitled to an additional Five Hundred Thousand (500,000) of shares of the Company’s restricted Series A Preferred Stock, $0.0001 par value per share, when the following condition has been met: Prior to December 31, 2018, LEHIG has booked premiums of at least Five Hundred Thousand dollars ($500,000). If this condition is met, the Company shall cause the issuance of such shares within ten (10) calendar days of the satisfaction of such conditions.
The LEHIG Equity-Holder shall be entitled to a second additional Five Hundred Thousand (500,000) of shares of the Company’s restricted Series A Preferred Stock, $0.0001 par value per share, when the following condition has been met: Prior to December 31, 2018, LEHIG has booked premiums of at least One Million dollars ($1,000,000). If this condition is 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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NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at January 31, 2018:
| January 31, 2018 | |
Accounts payable | $ | 68,738 |
Accrued commissions |
| 240,884 |
Accrued expenses |
| 56,211 |
Accrued interest |
| 11,974 |
| $ | 377,807 |
Accrued commissions consisted of commissions earned on sales of products and services by independent representatives and paid in the following month.
NOTE 8 - NOTES PAYABLE
Notes payable consisted of 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 |
| $ | - |
|
|
|
|
|
|
|
As of January 31, 2018, the Company accrued interest on these notes of $3,255 and recorded interest expense of $3,117 in interest expense for the period from inception (May 5, 2017) to January 31, 2018.
NOTE 97 - CONVERTIBLE NOTES PAYABLE
Convertible notes payable consistedconsists of the following as of January 31, 2018:following:
SCHEDULE OF CONVERTIBLE NOTES PAYABLE
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| Issuance Date | Maturity Date | Interest Rate | Conversion Price (per share) | September 30, 2021 | March 31, 2021 | |||||||||||||
| April 2021 | April 2024 | 8 | % | $ | $ | 30,000,000 | $ | - | ||||||||||
| October 2017 | October 2022 | 12 | % | $ | 50,000 | 50,000 | ||||||||||||
| April 2018 | April 2021 | 0 | % | $ | 100,000 | 100,000 | ||||||||||||
| Total convertible notes payable | 30,150,000 | 150,000 | ||||||||||||||||
| Less: unamortized debt discount and deferred financing costs | 25,137,965 | 15,607 | ||||||||||||||||
| Convertible notes payable, net | 5,012,035 | 134,393 | ||||||||||||||||
| Less: current portion of convertible notes payable | 100,000 | 99,631 | ||||||||||||||||
| Long-term convertible notes payable | $ | 4,912,035 | $ | 34,762 | ||||||||||||||
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, which are included in interest expense in the
17
consolidated statements of operations. The Company also recorded an interest of $25,139 on theCompany’s convertible notes payables, duringare convertible, at the period from inception (May 5, 2017) to January 31, 2018.
On November 14, 2017, the Company paid $90,055, for settlementoption 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 settlementholder, into shares of the note dated June 20,Company’s Common Stock at the conversion prices shown above.
In October 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 totalConvertible Promissory Note in the principal amount of $616,000 notes$50,000 (the “Note”) to HWH International, Inc (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the following terms:
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Company. The notes allowNote is convertible into shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to redeemHWH a detachable warrant to purchase up to an additional 333,333 shares of the notesCompany’s Common Stock, at rates ranging from 110%an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to 135% depending oncertain financing rights. If the redemptionCompany enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. See Note 9 below.
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In December 2019, the Company and the holder of the Company’s $100,000 convertible note dated April 13, 2018 (the “April 2018 Note”) entered into an amendment to the underlying promissory note. Pursuant to the amendment, the parties extended the maturity date provided that no redemptionof the note to April 2021. In addition, after giving effect to the amendment, the April 2018 Note is allowed afternon-interest bearing. All other terms of the 180th day.April 2018 Note remain unchanged. As of the date of this Quarterly Report, the Company and the holder of the note are discussing options, which may include the conversion in full or in part of the note, and the repayment of any remainder of the note. The Company received net cashintends to conclude these discussions and to settle the April 2018 Note in the foreseeable future.
On April 5, 2021, the Company and Decentralized Sharing Systems, Inc. (“DSSI”) entered into a Securities Purchase Agreement, pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $509,000$30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Warrant to purchase up to shares of the Company’s Class A Common Stock, at per share, and DSSI loaned to the Company $30.0 million. DSSI, is a subsidiary of DSS, Inc. (formerly Document Security Systems, Inc.) (“DSS”), and, together with DSS, is a major shareholder of the Company. Under the terms of the loan, the Company agreed to pay to DSSI a loan Origination Fee of $3.0 million, payable in shares of the Company’s Class A Common Stock, at the rate of per share. The Note bears interest at the annual rate of 8% and matures on April 5, 2024, subject to certain acceleration provisions upon the convertible notes and recognized $6,000occurrence of an Event of Default, as deferred financing fee, which is being amortized overdefined in the Note. At any time during the term of the convertible notes.Note, all or part of the Note, including the principal amount less unamortized prepaid interest, if any, plus any accrued interest can be converted into shares of the Company’s Class A Common Stock at the rate of $0.20 per share, at the option of the holder. Interest on the Note is pre-payable annually in cash or in shares of the Company’s Class A Common Stock, at the option of the Company, except that interest for the first year is pre-payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share.
TheIn connection with the issuance of the Note and the detachable Warrant, the Company determined thatallocated $15.0 million of the net proceeds from the loan to the detachable Warrant, allocated $12.0 million of the net proceeds to the beneficial conversion feature metembedded in the definitionNote and recognized deferred financing costs 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.$3.0 million. The fair value of the conversion feature was recorded as aresulting debt discount and the deferred financing costs are being amortized tointo interest expense over the term of the note.
Thenote (three years). During the six months ended September 30, 2021, the Company valuedissued to DSSI shares of its Class A Common Stock, including 15,000,000 shares in payment of the conversion feature usingloan Origination Fee and shares in prepayment of interest for the Binomial option pricing valuation model. Thefirst year. In connection therewith, the Company recognized a deemed dividend of $1,080,000 for the excess of the fair value of the derivative liabilityshares issued over the amounts settled.
During the three months ended September 30, 2021, and October 31, 2020, interest expense in connection with the Company’s convertible notes was $606,444 and $1,512, respectively, excluding amortization of debt discount of $2,269,312 and $5,120, respectively, and, in the three months ended September 30, 2021, amortization of deferred financing costs of $251,825. During the six months ended September 30, 2021, and October 31, 2020, interest expense in connection with the Company’s convertible notes was $1,173,419 and $3,025, respectively, excluding amortization of debt discount of $4,390,417 and $10,242, respectively, and, in the six months ended September 30, 2021, amortization of deferred financing costs of $487,226. These amounts are included in interest expense in our consolidated statements of operations.
NOTE 8 – INCOME TAXES
The statutory rates for allour domestic and our material foreign operations are as follows for the notes amountedperiods shown:
SCHEDULE OF STATUTORY RATES FOR OUR DOMESTIC AND FOREIGN OPERATION
| Country | 2021 | 2020 | ||||||
| United States | 21 | % | 21 | % | ||||
| Republic of Korea | 22 | % | 22 | % | ||||
For the six months ended September 30, 2021, and October 31, 2020, the consolidated effective tax rate was 0.07% and 30.7%, respectively. The consolidated effective tax rate for the six months ended September 30, 2021, was different from the federal statutory rate primarily due to $7,376,788. $544,000the valuation allowance of $1,866,779 placed on certain deferred tax assets being carried forward or projected to reverse in future years due to the uncertainty of the value assignedCompany generating sufficient taxable income in the foreseeable future to make realization probable. Income taxes applicable to our foreign operations are not material in the periods presented.
The effective tax rate for the six months ended October 31, 2020, was different from the federal statutory rate primarily due to the derivative liabilityprovision for state income and franchise tax liabilities.
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NOTE 9 - STOCKHOLDERS’ EQUITY
Common Stock
On July 28, 2021, the Company held its Annual Meeting of Stockholders. At the meeting, the Company’s Shareholders ratified the Second Amended and Restated Articles of Incorporation of the Company, which was recognizedpreviously approved by the Board of Directors. The Second Amended and Restated Articles of Incorporation, among other things, increased the authorized number of shares of the Company’s stock to shares, including: (a) shares of Common Stock having a par value of $ per share, and (b) shares of Preferred Stock having a par value of $ per share and comprised of the Company’s Convertible Series A Preferred Stock and Convertible Series C Preferred Stock.
During the six months ended September 30, 2021, the Company issued to DSSI shares of its Class A Common Stock, including shares in payment of the loan Origination Fee and shares in prepayment of interest for the first year, as a debt discount tomore fully discussed in Note 6 above. In addition, during the notes whilesix months ended September 30, 2021, the balanceholders of $6,832,788 was recognized as a “day 1” derivative loss. shares of the Company’s Series C preferred stock converted such holdings into shares of the Company’s Class A Common Stock, and the Company issued shares of its Class A Common Stock in connection with the exercise of stock warrants by its employees.
As of September 30, 2021, shares of our Class A Common Stock are issued and outstanding.
NOTE 10 - DERIVATIVE LIABILITIES
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “Derivatives and Hedging,” and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used a multi-nominal lattice model to calculate the fair value as of January 31, 2018. The multi-nominal lattice model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the
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multi-nominal lattice valuation model. The following weighted-average assumptions were used for the period ended January 31, 2018:
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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. The following table summarizes the loss (gain) on derivative liability included in the income statement for the period of inception (May 5, 2017) to January 31, 2018.
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NOTE 11 - RELATED PARTY CONSIDERATIONSTRANSACTIONS
Alchemist Holdings, LLCDecentralized Sharing Systems, Inc.
As partIn July 2020, Sharing Services and Heng Fai Ambrose Chan, a Director of the acquisition of Total Travel Media (see Note 1), Alchemist Holdings, LLC (“Alchemist”), which is controlled by our Chairman, Robert Oblon, received 7,500,000 shares of 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 the acquisition of Four Oceans Holdings, Inc. (see Note 1), Alchemist received 50,000,000 shares of the Series A Convertible Preferred Stock (66.7% of the issued shares).
On March 15, 2017, the Company, entered into a ConsultancyStock Purchase and MarketingShare Subscription Agreement with Alchemist(the “SPA Agreement”) pursuant to provide marketing and consulting services, tools, websites, video production and event management services. The Agreement shall remainwhich Mr. Chan invested $ million in effect until the completion of the services. 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 costin exchange for these services were estimated to be $840,000 for twelve months from agreement date. The Company has paid $862,361 to the related party, 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
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expense in the accompanying financial statements. For the period ended January 31, 2018 there was $69,000 paid to related parties for other services.
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 of the acquisition of Total Travel Media (see Note 1), Bear Bull Market Dividends, Inc. (“Bear Bull”), received 2,500,000 million shares of the Series B Convertible PreferredCompany’s Class A Common Stock (25% of the issued shares) and 2,500,000a fully vested Stock Warrant to purchase up to million shares of the Company’s Class A Common Class B Stock (25%at an exercise price of $ per share. On the issued shares), respectively.
As part ofstock warrant issuance date, the acquisition of Four Oceans Holdings, Inc. (see Note 1), Bear Bull received 20,000,000 shares of the 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 amounted to $1,627.
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. Conversionclosing 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 forwas $ per share and the 15 trading days priorCompany recognized a deemed dividend of $ million. Simultaneously with the SPA Agreement, Mr. Chan and Decentralized Sharing Systems, Inc. (“DSSI”), a subsidiary of DSS, Inc. (“DSS”), and, together with DSS, a major shareholder of the Company, entered into an Assignment and Assumption Agreement pursuant to conversion.which Mr. Chan assigned to DSS all interests in the SPA Agreement. In July 2020, the Company issued million shares of its Class A Common Stock to DSS, an “accredited investor” as defined in the Securities Act, pursuant to the SPA Agreement. Under the terms of the SPA Agreement, the shares of Class A Common Stock issued to DSS are subject to a one (1) year restriction. The Stock Warrant issued pursuant to the SPA Agreement expires on the third anniversary from the issuance date, unless exercised earlier.
On April 5, 2021, Sharing Services and DSSI entered into a Securities Purchase Agreement, pursuant to which the Company may prepay any portion ofissued: (a) a Convertible Promissory Note in the principal amount of $30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Warrant to purchase up to shares of the Company’s Class A Common Stock, at 115% of such amount along with any accrued interest of this note at any time upon three days written notice$0.22 per share, and DSSI loaned to the holder. The Company valued$30.0 million. Under the conversion feature using the Binomial option pricing valuation model (see Note 10). The fair valueterms of the derivative liability forloan, the note amountedCompany agreed to $57,276. $50,000pay to DSSI a loan Origination Fee of $3.0 million, payable in shares of the value assigned toCompany’s Class A Common Stock, at the derivative liability was recognized as a debt discount to the note while the balancerate of $7,276 was recognized as a “day 1” derivative loss. The discount is being amortized over the life$0.20 per share. See Note 6 for more information.
As of September 30, 2021, DSS and its affiliates owned 91.4 million shares of the note usingCompany’s Class A Common Stock, excluding million shares issuable upon the effective interest method resultingexercise of warrants held by DSS and million shares issuable upon conversion of the Note discussed in $10,822the preceding paragraph. Heng Fai Ambrose Chan, Frank D. Heuszel, and John (“JT”) Thatch, each a Director of interest expense and $39,178 as unamortized discount, for the period ended January 31, 2018. As of January 31, 2018, the Company, accrued interestalso serve 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 unlessDSS. Mr. Chan also serves as Chairman of the Series A Preferred shares areBoard of Directors of the Company. Mr. Thatch also serves as President, CEO and Vice Chairman of the Board of Directors of the Company.
Alset Title Company, Inc.
In July 2021, the Company entered into a purchase agreement pursuant to receivewhich the same dividend asCompany intends to purchase an office building subject to certain significant limiting conditions including, among other things, the common shares, on an
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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 rankdelivery to the Series A Preferred sharesCompany by Alset Title Company, Inc. (“Alset Title”) of an Owner’s Policy of Title Insurance. The purchase price is anticipated to be approximately $8.8 million. Alset Title would also act as escrow and closing agent for the transaction. Alset Title is a subsidiary of DSS which, together with respectanother of DSS’ subsidiaries, is a major shareholder of the Company.
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Hapi Café, Inc.
In August 2021, Sharing Services entered into a Letter of Intent (the “LOI”) to acquire the exclusive franchise rights in North America 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 upbrand “Hapi Café” from Hapi Café, Inc, a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, whether voluntarysubject to formalization of a Master Franchise Agreement. Under the proposed terms, Sharing Services, directly or involuntary,through its subsidiaries, will operate no less than five (5) corporate-owned stores and can offer to the holderspublic sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the LOI and ultimate Master Franchise Agreement. Each corporate or franchised Hapi Café TM store will offer to customers and Brand Partners seeking a healthier lifestyle: (a) a selection of functional and healthy food and beverages, (b) a pleasant workspace with free Wi-Fi service, (c) extensive physical fitness, nutrition management and personal workout print and video content, and (d) our Hapi Travel TM subsidiary’s proprietary travel services.
HWH International, Inc.
In October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $50,000 (the “Note”) to HWH International, Inc (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Series A Preferred Stock shall receive out of the assets of the Company the sum of $0.001 perCompany. The Note is convertible into 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 shareConcurrent with issuance of Series A Preferred Stock is entitled to one vote when voting as a class or together with shares of Common Stock.
From May 5, 2017 to January 31, 2018,the Note, the Company issued the followingto HWH a detachable stock warrant to purchase up to an additional 333,333 shares of Series A Convertible Preferred Stock:
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On January 10, 2018 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).
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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 America Approved Commercial LLC. The shares were issued for a deemed value of $0.25 per share or $156,250 (see Note 4).
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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).
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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).
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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).
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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).
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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).
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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).
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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.
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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 January 31, 2018, 85,194,540 shares of series A Convertible Preferred Stock were issued and outstanding.
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Series B Convertible Preferred Stock
The Company has authorized the issuance of ten million (10,000,000) series of 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 shareStock, at an exercise price of Series B Preferred Stock$0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to one vote when voting ascertain financing rights. If the Company enters into more favorable transactions with a classthird-party investor, it must notify the Holder and one thousand votes when voting togethermay have to amend and restate the Note and the detachable stock warrant to be identical. As of the date of this Quarterly Report, the Company and HWH are jointly reviewing the Note and the detachable stock warrant. The number of shares that HWH may acquire upon conversion of the HWH Note and exercise of the detachable stock warrant may be greater than the amounts described in this paragraph, depending on the results of such review.
HWH World, Inc.
A subsidiary of the Company operating in the Republic of Korea subleases office space from HWH World, Inc., a subsidiary of DSS and a company affiliated with sharesHeng Fai Ambrose Chan, a Director of Common Stock.the Company. Pursuant to the terms of the sublease agreement, the Company recognized a right-of-use asset and an operating lease liability of $303,322 in connection therewith. As of September 30, 2021, accounts payable includes payments due to HWH World under the lease of $164,400.
On May 23, 2017,In September 2021, the Company and HWH World, Inc., a subsidiary of DSS and a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, entered into an Advisory Agreement pursuant to which the Share Exchange Agreement (See Note 1)Company provides strategic advisory services to HWH World, Inc. in connection with its North America expansion plans in exchange for a monthly fee of $10,000.
K Beauty Research Lab. Co., Ltd
In the six months ended September 30, 2021, a wholly owned subsidiary of the Company purchased skin care products manufactured by K Beauty Research Lab. Co., Ltd (“K Beauty”), a South Korean-based supplier of skin care products that is affiliated with Heng Fai Ambrose Chan, a Director of the Company, in the aggregate amount of $2.7 million, respectively. The Company’s affiliates operating in Asia intend to distribute skin care and other products in South Korea and other countries, including skin care products procured from K Beauty, as part of the Company’s previously announced strategic growth plans.
Premier Packaging Corporation
In the six months ended September 30, 2021, a wholly owned subsidiary of the Company issued 10,000,000 sharespurchase orders to Premier Packaging Corporation, a subsidiary of Series B convertible preferred stockDSS, to acquire printed packaging materials in the stockholdersaggregate amount of Total Travel Media$151,509.
Stock Warrants
Stock Warrants Issued to Directors, Officers and Employees
In July 2020, Sharing Services and Heng Fai Ambrose Chan, a Director of the Company, entered into a Stock Purchase and Share Subscription Agreement (the “SPA Agreement”) pursuant to which Mr. Chan invested $ million in the Company in exchange for 10,000,000 million shares of Total Travel Media’s common stock, representing 100% of its issuedthe Company’s Class A Common Stock and outstanding common stock. As a resultfully vested Stock Warrant to purchase up to million shares 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 issuance of ten million (10,000,000) series of Series C Preferred Stock. The Series C Preferred shares are junior in ranking to the SeriesCompany’s Class 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 PreferredCommon Stock at aan exercise price of $0.001$ per share; (iii) authorize or issue additional or other capitalshare. In July 2020, Mr. Chan assigned to DSS all interests in the SPA Agreement and the transactions contemplated in the SPA Agreement were completed. Mr. Chan is also a Director of DSS.
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In October 2017, Sharing Services issued a convertible note in the principal amount of $50,000 to HWH International, Inc (“HWH”) and a detachable stock that is junior or equal rankwarrant to the Series C Preferredpurchase up to 333,333 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 shareStock, at an exercise price of Series C Preferred Stock$0.15 per share. The Note is entitled to one vote when voting as a class or together withconvertible into shares of the Company’s Common Stock.Stock and expires in October 2022. HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Company.
During the period ended January 31, 2018 we issued 3,680,000 sharesfiscal year 2020; certain domestic subsidiaries of Series C Convertible Preferred Stockthe Company entered multi-year employment agreements with its key employees. In general, each employment contract contained a fully vested initial grant of warrants exercisable at a fixed exercise price and, provided for $0.25 per share, for proceedssubsequent grants that were exercisable at a discounted price based on the 10-day average stock price determined at the time of $920,000.
Asexercise. The subsequent grants would vest at each anniversary date of January 31, 2018, 3,680,000 shares of series C Preferred Stock were issued and outstanding.
Common Stock
the employment agreement effective date. The Company has authorizedbegins recognizing the issuancecompensatory nature of Class A common stockthe warrants at the service inception date and Class B common stock. Weceases recognition at the vesting date. Due to the variable nature of the exercise price for some grants, the Company will continue to recognize expense (or benefit) after the end of the service period until the warrants are authorized to issue 500,000,000 sharesexercised or expire. As such, the Company disclosures below are based on either (i) the fixed exercise price of Class A common stockthe warrant; or (ii) the variable exercise price of the warrant as determined on the last day of the period.
During the six months ended September 30, 2021, and 10,000,000 sharesOctober 31, 2020, the Company recognized a compensatory gain of Class B common stock, each$1,781,100 and $906,375, respectively, in connection with grants with a par value of $0.0001 per share. Holders of our Class A common stockvariable exercise price after service is completed.
NOTE 12 – LEASES
The Company leases space for its offices and Class B common stock are entitled to dividends when,warehouse space, under lease agreements classified as “operating leases’” as defined in ASC Topic 842. The weighted-average remaining lease term and if, declared by our board of directors, subjectdiscount rate related to the rightsCompany’s lease liabilities as of September 30, 2021, were 1.3 years and 12% respectively. The Company’s discount rate is generally based on estimates of its incremental borrowing rate, as discount rates implicit in the Company’s leases cannot be readily determined.
The following information pertains to the Company’s leases as of the holders of all classes ofbalance sheet dates indicated:
SCHEDULE OF OPERATING LEASE ASSETS AND LIABILITIES
| Assets | Classification | September 30, 2021 | March 31, 2021 | |||||||
| Operating leases | Right-of-use assets, net | $ | 319,517 | $ | 428,075 | |||||
| Total lease assets | $ | 319,517 | $ | 428,075 | ||||||
| Liabilities | ||||||||||
| Operating leases | Accrued and other current liabilities | $ | 287,921 | $ | 373,398 | |||||
| Operating leases | Lease liability, long-term | 31,597 | 77,810 | |||||||
| Total lease liability | $ | 319,518 | $ | 451,208 | ||||||
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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, pursuantfollowing information pertains to the Share Exchange Agreement (See Note 1),Company’s leases for 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.periods indicated:
SCHEDULE OF OPERATING LEASE COSTS
| Three Months Ended | ||||||||||
| Lease cost | Classification | September 30, 2021 | October 31, 2020 | |||||||
| Operating lease cost | General and administrative expenses | $ | 305,680 | $ | 130,275 | |||||
| Operating lease cost | Depreciation and amortization | - | - | |||||||
| Operating lease cost | Interest expense, net | - | - | |||||||
| Total lease cost | $ | 305,680 | $ | 130,275 | ||||||
| Six Months Ended | ||||||||||
| Lease cost | Classification | September 30, 2021 | October 31, 2020 | |||||||
| Operating lease cost | General and administrative expenses | $ | 465,500 | $ | 270,498 | |||||
| Operating lease cost | Depreciation and amortization | - | - | |||||||
| Operating lease cost | Interest expense, net | - | - | |||||||
| Total lease cost | $ | 465,500 | $ | 270,498 | ||||||
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.
Shares Subscribed
As of January 31, 2018, the Company has received subscriptions for Series C Convertible Preferred Stock totaling $16,000.
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 warrantsCompany’s lease liability is payable as of January 31, 2018:follows:
SCHEDULE OF OPERATING LEASE LIABILITY PAYABLE
Warrants Outstanding |
|
| Warrants Exercisable |
| ||||||||||||||
|
|
| Weighted Average Remaining |
|
| Weighted Average |
|
|
|
|
| Weighted Average |
| |||||
Number of Shares |
|
| Contractual life (in years) |
|
| Exercise Price |
|
| Number of Shares |
|
| Exercise Price |
| |||||
| 333,333 |
|
|
| 4.25 |
|
| $ | 0.15 |
|
|
| 333,333 |
|
| $ | 0.15 |
|
A summary of activity during the period from inception to January 31, 2018 as follows:
|
| 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 |
|
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| Twelve months ending September 30, | ||||
| 2022 | $ | 287,921 | ||
| 2023 | 31,597 | |||
| 2024-2026 | - | |||
| Thereafter | - | |||
| Total lease liability | $ | 319,518 | ||
NOTE 13 - – COMMITMENTS AND CONTINGENCIES
PursuantRegulatory Matters
In May 2021, the Company announced that it has received a notice from the pertinent licensing authority in the Republic of Korea, (“KOSSA”) stating that the multi-level license previously issued to our 40% equity investment in LEH Insurance Group LLC (“LEHIG”), on October 4, 2017, LEHIG based upon attaining certain benchmarks for booked insurance premiums through December 31, 2018, the seller of the LEHIG ownership may be entitled to an additional 1,000,000 shares of the Company’s Series A Preferred Stock. As of January 31, 2018, the Companysubsidiary organized in South Korea has not recorded a contingency for this event.
Pursuant to our 25% equity investment in 561 LLC ("561"), on October 4, 2017, if, on October 4, 2018, the Company's common stock has a closing bid price in excess of $5.00 per share, the sellers of 561 ownership shall be entitled to an additional 2,500,000 shares of the Company's Series A Preferred Stock. Additionally, at such time as the Company shall be the owner of record of no less than 40% of the member interests in each of 561 and it's affiliated Company, America Approved Commercial, LLC ("AAC"), the Sellers of 561 ownership shall be entitled to another 2,500,000 shares of the Company's Series A Preferred Stock. As of January 31, 2018, the Company has not made a contingency for these events
Pursuant to our 25% equity investment in AAC, on October 4, 2017, if, on October 4, 2018, the Company's common stock has a closing bid price in excess of $5.00 per share, the sellers of the AAC ownership shall be entitled to an additional 2,500,000 shares of the Company's Series A Preferred Stock. Additionally, at such time as the Company shall be the owner of record of no less than 40% of the member interests in each of AAC and its affiliated company, 561, the sellers of AAC shall be entitled to another 2,500,000 shares of the Company's Series A Preferred Stock. As of January 31, 2018, the Company has not made a contingency for these events.
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
Subsequent to January 31, 2018, and through to March 21, 2018, the date these financials were approved to be issued, we had the following subsequent events:
On February 8, 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 issuancebeen cancelled 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 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.KOSSA. The Company and its wholly ownedsubsidiary are actively reviewing all correspondence with KOSSA, investigating the facts surrounding the cancellation, and reviewing all available options to resolve all outstanding issued raised by KOSSA.
Legal Matters in General
The Company and its subsidiaries will now operate athave incurred several claims in the new addressnormal course of 1700 Coit Rd. Suite 100, Plano, Texas 75075. This new locationbusiness. The Company believes such claims can be resolved without any material adverse effect on our consolidated financial position, results of operations, or cash flows.
The Company maintains certain liability insurance. However, certain costs of defending lawsuits are not covered by or only partially covered by its insurance policies, including claims that are below insurance deductibles. Additionally, insurance carriers could refuse to cover certain claims, in whole or in part. The Company accrues costs to defend itself from litigation as they are incurred.
The outcome of litigation is slightly less than 10,000 Sq. Ft. allowing for expansionuncertain, and despite management’s view of the merits of any litigation, or the reasonableness of the Company’s estimates and reserves, the Company’s financial statements could nonetheless be materially affected by an adverse judgment. The Company believes it has adequately reserved for the customer service department, product fulfillment, opportunitycontingencies arising from current legal matters where an outcome was deemed to be probable, and training rooms as well as a video production suite.the loss amount could be reasonably estimated. No provision for legal matters was deemed necessary at September 30, 2021.
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Legal Proceedings
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On March 16, 2018,The Company from time to time is involved in various claims and lawsuits incidental to the Company closed a lineconduct 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 ” )its business in the principal amountordinary course. We do not believe that the ultimate resolution of $250,000.00.these matters will have a material adverse impact on our consolidated financial position, results of operations or cash flows.
| (a) | Case No. 4:20-cv-00946; Dennis Burback, Ken Eddy and Mark Andersen v. Robert Oblon, Jordan Brock, Jeff Bollinger, Four Oceans Global, LLC, Four Oceans Holdings, Inc., Alchemist Holdings, LLC, Elepreneurs U.S., LLC, Elevacity U.S., LLC, Sharing Services Global Corporation, Custom Travel Holdings, Inc., and Does 1-5, pending in the United States District Court for the Eastern District of Texas. On December 11, 2020, three investors in Four Oceans Global, LLC filed a lawsuit against the Company, its affiliated entities, and other persons and entities related to an investment made by the three investors in 2015. The Company and its affiliated entities have filed an answer denying the three investors’ claims. This matter remains pending as of September 30, 2021. |
| (b) | AAA Ref. No. 01-20-0019-3907; Sharing Services Global Corporation, Elevacity Holdings, LLC, Elevacity U.S., LLC, Elepreneurs Holdings, LLC and Elepreneurs U.S., LLC v. Robert Oblon, pending before the American Arbitration Association. On December 30, 2020, the Company and its affiliated companies filed an arbitration complaint against Robert Oblon for breach of contract and a declaratory judgment relating to the Multi-Party Settlement Agreement with Robert Oblon. This matter remains pending as of September 30, 2021. |
| (c) | Case No. 4:20-cv-00989; Sharing Services Global Corporation, Elevacity Holdings, LLC, Elevacity U.S., LLC, Elepreneurs Holdings, LLC and Elepreneurs U.S., LLC v. Robert Oblon, pending in the in the United States District Court for the Eastern District of Texas. On December 30, 2020, the Company and its affiliated companies filed a lawsuit against Robert Oblon seeking injunctive relief relating to the Multi-Party Settlement Agreement with Robert Oblon. This matter is a companion case to the AAA arbitration proceeding described in paragraph (b) above and, while it remains pending as of September 30, 2021, further action in this case has been stayed by court order, pending final adjudication of the referenced AAA arbitration proceeding. |
| (d) | Case No. 4:21-cv-00026; Elepreneurs Holdings, LLC d/b/a Elepreneur, LLC, Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC, and SHRG IP Holdings, LLC v. Lori Ann Benson, Andrea Althaus and Lindsey Buboltz, pending in the United States District Court for the Eastern District of Texas. On December 31, 2020, the Company filed suit against three former distributors and obtained injunctive relief from the 429th Judicial District of Collin County, Texas. The lawsuit was removed by the three former distributors to federal court. The Company subsequently obtained injunctive relief from the federal court. The matter remains pending as of September 30, 2021. |
| (e) | Case No. 4:21-cv-00183; Sharing Services Global Corporation f/k/a Sharing Services, Inc., Elepreneurs Holdings, LLC n/k/a Elevacity Holdings, LLC, Elepreneurs U.S., LLC n/k/a Elevacity U.S., LLC and SHRG IP Holdings, LLC v. AmplifeiIntl, LLC d/b/a HAPInss and HAPInssBrands, LLC pending in the United States District Court for the Eastern District of Texas. On March 5, 2021, the Company and its affiliated entities filed suit against a newly formed competitor for various claims including trademark infringement, trade secret violations, unfair competition under state and federal law as well as tortious interference with contracts and business relationships. The matter remains pending as of September 30, 2021. |
NOTE 14 – FAIR VALUE MEASURENTS OF FINANCIAL INSTRUMENTS
Our financial instruments consist of cash equivalents, if any, accounts receivable, notes receivable, investments in unconsolidated entities, accounts payable and convertible notes payable. The Note accrues interest atcarrying amounts of cash equivalents, if any, trade accounts receivable and accounts payable approximate their respective fair values due to the rateshort-term nature of Twelve percent (12%) per annumthese financial instruments.
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Consistent with the principal amountvaluation hierarchy contained in ASC Topic 820, we categorized certain of our consolidated financial assets 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.liabilities as follows:
SUMMARY OF FINANCIAL ASSETS AND LIABILITIES
| September 30, 2021 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in unconsolidated entities | $ | 5,051,970 | $ | 272,886 | $ | 3,242,084 | $ | 1,537,000 | ||||||||
| Notes receivable | 136,281 | - | - | 136,281 | ||||||||||||
| Total assets | $ | 5,188,251 | $ | 272,886 | $ | 3,242,084 | $ | 1,673,281 | ||||||||
| Liabilities | ||||||||||||||||
| Convertible notes payable | $ | 14,344,773 | $ | - | $ | 14,205,000 | $ | 139,773 | ||||||||
| Total liabilities | $ | 14,344,773 | $ | - | $ | 14,205,000 | $ | 139,773 | ||||||||
| March 31, 2021 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Notes receivable | $ | 94,600 | $ | - | $ | - | $ | 94,600 | ||||||||
| Total assets | $ | 94,600 | $ | - | $ | - | $ | 94,600 | ||||||||
| Liabilities | ||||||||||||||||
| Notes Payable | $ | 1,040,400 | $ | - | $ | - | $ | 1,040,400 | ||||||||
| Convertible notes payable | 134,393 | - | - | 134,393 | ||||||||||||
| Total liabilities | $ | 1,174,793 | $ | - | $ | - | $ | 1,174,793 | ||||||||
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| 22 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In its fiscal year 2021, the Company changed its fiscal year-end from a fiscal year ending on April 30 to a fiscal year ending on March 31. The following discussionsection discusses management’s views of ourthe financial condition and the results of operations and cash flows of Sharing Services Global Corporation and consolidated subsidiaries. This section should be read in conjunction withwith: (a) our unauditedaudited consolidated financial statements and related notes included in our Transition Report on Form 10-K for the transition period ended March 31, 2021, and (b) our condensed consolidated financial statements and associated notes appearingincluded elsewhere in this Report on Form 10-Q.Quarterly Report. This discussion containssection may contain forward-looking statements based upon current expectations that involve risks and uncertainties.statements. See “Cautionary NoteNotice Regarding Forward-Looking Statements.Statements” above for a discussion of forward-looking statements.
Highlights for the Three Months Ended September 30, 2021:
| ● | For the three months ended September 30, 2021, consolidated net sales decreased $9.6 million, or 49.2%, to $9.9 million, compared to the three months ended October 31, 2020. |
| ● | For the three months ended September 30, 2021, consolidated gross profit decreased $7.4 million, or 51.7%, to $6.9 million, compared to the three months ended October 31, 2020. Consolidated gross margin was 70.4% for the three months ended September 30, 2021, compared to 74.0% for the three months ended October 31, 2020. |
| ● | For the three months ended September 30, 2021, consolidated operating expenses decreased $2.9 million, or 21.5%, to $10.6 million, compared to the three months ended October 31, 2020. |
| ● | For the three months ended September 30, 2021, consolidated operating loss was $3.6 million compared to operating earnings of $932,435 million for the three months ended October 31, 2020. |
| ● | For the three months ended September 30, 2021, consolidated net non-operating expenses were $354,899 compared to net non-operating income of $1,966,604 for the three months ended October 31, 2020. |
| ● | For the three months ended September 30, 2021, consolidated income tax benefit was $1.3 million, compared to a consolidated income tax provision of $659,994. |
| ● | For the three months ended September 30, 2021, consolidated net loss was $2.7 million compared to consolidated net earnings of $2.2 million for the three months ended October 31, 2020. For the three months ended September 30, 2021, diluted loss per share was $0.01, compared to diluted earnings per share of $0.01 for the three months ended October 31, 2020. |
| ● | For the six months ended September 30, 2021, consolidated net cash used by operating activities was $10.2 million compared to $3.8 million for the three months ended October 31, 2020. |
| ● | In April 2021, Sharing Services borrowed $30.0 million from Decentralized Sharing Systems, Inc. (“DSSI”), a subsidiary of DSS, Inc. (formerly Document Security Systems, Inc.) (“DSS”), and, together with DSS, a major shareholder of the Company. |
| ● | In April 2021, Sharing Services issued to DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of a loan Origination Fee of $3.0 million and 12,000,000 shares in prepayment of $2.4 million in interest in connection with the DSSI loan discussed above. |
| ● | In September 2021, Sharing Services invested $1.4 million in Stemtech Corporation and $1.5 million in MojiLife, LLC., both emerging growth companies. |
Overview
Summary Description of Business
The Company, through its subsidiaries, aims to further develop and operate a multi-platform business, including: (a) the Company’s current health and wellness products businesses, (b) a subscription-based travel services business in the U.S. and in international geographies under the banner: Hapi Travel TM, (c) the operation and franchising of Hapi Cafe TM innovative destination cafes in North America, and (d) investing from time to time in emerging businesses in efforts to leverage the Company’s resources and business competencies and to participate in these businesses’ growth.
Health and Wellness Products - The Company’s subsidiaries operating in the health and wellness products industry, which accounted for substantially all the Company’s consolidated net sales during the periods included in this Quarterly Report, market their products primarily through an independent sales force, using a direct selling business model under the proprietary brand “The Happy Co.”. Currently, The Happy Co. TM markets and distributes its health and wellness products primarily in the United States, Canada, the Republic of Korea, and other countries in the Asia Pacific region. In addition, certain of the Company’s domestic subsidiaries market its health and wellness products on a “not-for-resale” basis to consumers in other countries outside the U.S.
| 23 |
Subscription-Based Travel Services - Through its subsidiary, Hapi Travel Destinations, the Company is preparing to launch a subscription-based travel services business under the proprietary brand “Hapi Travel.” Our actual results may differ materiallyThe Hapi Travel TM services are designed to offer the opportunity to travel to exciting destinations in the U.S. and abroad to people of all ages, demographics, and economic backgrounds. Hapi Travel TM will also provide excellent entrepreneurial opportunities by capitalizing on both the direct selling model and the retail travel model.
Company-Owned and Franchised Destination Cafes – Sharing Services recently entered into a Letter of Intent (the “LOI”) to acquire the exclusive franchise rights in North America to the brand “Hapi Café” from thoseHapi Café, Inc, a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, subject to formalization of a Master Franchise Agreement. Under the proposed terms, Sharing Services, directly or through a subsidiary, will operate no less than five (5) corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the LOI and the ultimate Master Franchise Agreement. Each corporate-owned or implied by any forward-looking statements asfranchised Hapi Café TM store will offer customers and Brand Partners seeking a resulthealthier lifestyle: (a) a selection of various factors, includingfunctional and healthy food and beverages, (b) a pleasant workspace with free Wi-Fi service, (c) extensive physical fitness, nutrition management and personal workout print and video content, and (d) our Hapi Travel TM subsidiary’s proprietary travel services.
Targeted Ownership Interests – Directly and through its subsidiaries, the risksCompany from time to time will invest in emerging businesses, using a combination of debt and uncertainties described under “Risk Factors.”, as set forthequity financing, in our Annual Report on Form 10-K filed withefforts to leverage 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 votingCompany’s resources and managing control of our Company. Total Travel was the acquirer for financial reporting purposesbusiness competencies and Sharing Services, Inc. was the acquired company. Consequently, the consolidated financial statements after completionto participate in these businesses’ growth. As part of the acquisition includeCompany’s commitment to these emerging businesses’ success, the assetsCompany, directly and liabilities of both Sharing Servicesthrough its subsidiaries, also offers non-traditional inventory financing, equity or debt financing, order fulfillment and Total Travel, the historical operations of Total Travellogistic, CRM “Back Office” solutions, and their consolidated operations from the May 23, 2017 closing date of the acquisition. Total Travel retroactively applied its recapitalization for all periods presented in the accompanying consolidated financial statements.other success-critical services to these businesses.
Total TravelThe Company was incorporated in the State of Nevada on May 5, 2017. Total Travel wasin April 2015.
Convertible Notes and Borrowing Under Short-term Financing Arrangements
Historically, the surviving companyCompany has funded a substantial portion of its liquidity and became a wholly owned subsidiarycash needs through the intermittent issuance of Sharing Services. convertible notes and borrowings under short-term financing arrangements, and through the intermittent issuance of equity securities. See “Liquidity and Capital Resources” below for additional information about the Company’s convertible notes and borrowings under short-term financing arrangements.
Industry and Business Trends
The financial statements reflectedinformation in this 10-Q as of January 31, 2018 represents the period May 5, 2017 (date of inception) to January 31, 2018.
The financial statements“Industry and Business Trends” included in this report reflect all adjustments, consistingITEM 1 — “Business” in our Transition Report on Form 10-K for the fiscal year ended March 31, 2021, is incorporated herein by reference.
Change of normal recurring adjustments, whichFiscal Year
In March 2021, the Company adopted a change in the opinion of management are necessary for fair presentation of the information contained therein.
Our History.
We were incorporated in Nevadaits fiscal year-end, from a fiscal year ending on April 24, 2015 under the name Sharing Services, Inc.30 to a fiscal year ending on March 31. Accordingly, this discussion and were engaged in the development of a taxi sharing web application. In early 2017, we proposed expanding our business model into that 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, pursuant to which the Company acquired all of the shares of capital 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.
Business Description
Sharing Services, Inc. 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 productsanalysis relates to the consumer directly through independent representatives or offers services that range from manufacturing, processing, training, and travel benefits.
With the acquisition 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 related 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. Included 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, 2017, the Company launched its (BETA) website.
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 historicalconsolidated results of operations for Sharing Services priorthe three months ended September 30, 2021 (92 days) compared to May 23, 2017the three months ended October 31, 2020 (92 days), and the results of operations and cash flows for the six months ended September 30, 2021 (183 days) compared to the six months ended October 31, 2020 (184 days).
Strategic Growth Initiatives
The Company intends to grow its business by pursuing a multipronged growth strategy, which includes (a) increasing the number of product offerings in the U.S. and Canada, (b) expanding U.S. sales directly to foreign consumers, (c) expanding its operations in the Asia Pacific region, (d) developing and launching a subscription-based travel services business in the U.S. and in international geographies, and (e) operating corporate-owned and franchising Hapi Café TM stores.
This growth strategy may also include the use of strategic acquisitions of businesses that augment the Company’s product and services portfolio, business competencies and geographic reach, including by leveraging the Company’s business competencies by investing in emerging businesses, using a combination of debt and equity financing, in efforts to participate in these businesses’ growth.
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Significant Uncertainty Regarding the Potential Impact of Ongoing COVID Health Crisis
In an effort to protect our customers, distributors, employees, and other business partners, in 2020, we instituted several temporary preventive measures, including transitioning a significant number of our corporate employees to working remotely, increasing efforts to clean and sanitize our business facilities, increasing employee safety communication efforts, and transitioning sales conventions to a virtual convention platform. Some of these temporary measures have increased our already significant reliance on telephone and computer systems and on the availability of continued and impeded access to the Internet by our business. The timing when these temporary measures will be eased or reversed altogether is contingent on the success of current efforts, by governmental policy makers, healthcare service providers, and others, to contain the infection rates in the U.S. and other countries where we acquired Total Travel Mediaoperate. At the time of this Quarterly Report, we cannot project with certainty the timing and extend of any potential easing or reversal of our temporary preventive measures.
There continues to be significant uncertainty in the U.S. and other countries where we operate about: (a) the availability of effective vaccines in sufficient quantities, (b) the ability of governmental authorities, healthcare service providers, and others to achieve population immunization levels that effectively stop the spread of the decease, and (c) the timing and speed of any economic recovery after the COVID health crisis is controlled. As a result of the foregoing, we cannot predict the ultimate scope, duration, and ultimate impact of the global COVID public health emergency, but we believe the pandemic may have a material adverse impact on our businesses, financial condition, cash flows, and results of operations (including revenues and profitability), and those of our key suppliers.
Results of Operations
The Three Months Ended September 30, 2021, compared to the Three Months Ended October 31, 2020
Net Sales
The Company recently changed its fiscal year-end, from a fiscal year ending on April 30 to a fiscal year ending on March 31. For the three months ended September 30, 2021 (92-days), consolidated net sales decreased $9.6 million, or 49.2%, to $9.9 million, compared to the three months ended October 31, 2020 (92 days). The decrease in consolidated net sales mainly reflects: (a) continuation of the decline in consumer orders experienced by our direct-to-consumer subsidiaries since the fourth quarter of the fiscal year 2020, (b) a decline, experienced by our direct-to-consumer subsidiaries, in independent distributor orders, in the number of new independent distributors, and in the number of continuing active distributors, resulting, in part, from recent product reformulations and increased competition for independent distributors, and (c) the generally adverse impact on consumer buying trends resulting from the COVID global health emergency and actions taken to help mitigate the spread of the virus in the geographies in which we operate. This decrease was partially offset by sales (approximately $2.3 million) of health and wellness products introduced since October 31, 2020, by sales (approximately $1.2 million) of our new weight management systems, and by sales (approximately $1.3 million) of our subsidiary operating in South Korea. In efforts to restore strong sales growth, we have developed and launched the new business brand, “The Happy Co TM,” at our Elevacity division, have accelerated our previously announced initiatives to expand operations into additional international geographies, and our subsidiaries have intensified their efforts to recruit, develop and reward their distributors and their efforts reach new consumers, including through the continued introduction of new products.
We believe there continues to be significant uncertainty about the potentially adverse impact of the current health crisis on the economies and employment markets in several countries, including the U.S. and other countries where we operate. Please see Overview - Significant Uncertainty Regarding the Potential Impact of Ongoing COVID Health Crisis above.
The $9.6 million decrease in consolidated net sales reflects a decrease in the number of comparable product units sold and in the average unit selling prices.
During the three months ended September 30, 2021, approximately 84% of consolidated net sales were from our Elevate health and wellness product line and approximately 15% from the sale of our weight management systems. During the three months ended October 31, 2020, approximately 99% of consolidated net sales were from the Elevate health and wellness product line.
During the three months ended September 30, 2021, approximately 68% of consolidated net sales were to consumers (including approximately 34% to recurring customers, which we refer to as noted above.“SmartShip” sales, and approximately 34% were to new customers) and approximately 32% of consolidated net sales were to independent distributors.
OverviewGross Profit
For quarterly periodthe three months ended JanuarySeptember 30, 2021, consolidated gross profit decreased $7.4 million, or 51.7%, to $6.9 million, compared to the three months ended October 31, 2018,2020, and consolidated gross margins were 70.4% and 74.0%, respectively. For the three months ended September 30, 2021, gross margin was adversely affected by an increase in our provision for excess (slow-moving) inventory of $182,566 and a shift in product sales mix (to lower margin products) in the normal course of business.
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Selling and Marketing Expenses
For the three months ended September 30, 2021, consolidated selling and marketing expenses decreased $3.7 million to $5.0 million, or 50.9% of consolidated net sales, compared to $8.8 million, or 45.1% of consolidated net sales, for the three months ended October 31, 2020. The decrease in consolidated selling and marketing expenses is due to lower sales commissions of $3.7 million (which reflects decrease in consolidated net sales discussed above).
General and Administrative Expenses
For the three months ended September 30, 2021, consolidated general and administrative expenses (which include corporate employee compensation and benefits, stock-based compensation, professional fees, rent and other occupancy costs, certain consulting fees, telephone and information technology expenses, insurance premiums, and other administrative expenses) increased $851,484, to $5.5 million, or 56.1% of consolidated net sales, compared to $4.7 million, or 24.1% of consolidated net sales, for the three months ended October 31, 2020. The increase in consolidated general and administrative expenses was due to higher consulting and professional fees of $560,313, higher employee compensation and compensation-related benefits of $325,267 and higher other general corporate administrative expenses of $1.1 million, partially offset by lower stock-based compensation expense of $1.1 million.
Interest Expense, Net
For the three months ended September 30, 2021, consolidated interest expense was $616,907, excluding amortization of debt discount of $2,269,312, amortization of deferred financing costs of $251,825, and interest income of $11,686. Consolidated interest expense of $616,907 reflects $604,932 associated with borrowings under the $30.0 million loan from “DSSI”.
For the three months ended October 31, 2020, consolidated interest expense was $5,950, excluding amortization of debt discount of $5,120 and interest income of $2,799. Consolidated interest expense of $5,950 includes $2,537 associated with borrowings under short-term financing arrangements (including borrowing under the PPP Loan discussed under Short-term Borrowings and Convertible Notes below) and $1,512 associated with our convertible notes.
Gain (loss) on employee warrants liability
For the three months ended September 30, 2021, and three months ended October 31, 2020, consolidated compensatory gain in connection with employee warrants with a variable exercise price after service was completed were $646,930 and $2,029,875, respectively.
Unrealized Gains (Losses) on Investment in Unconsolidated Entities
For the three months ended September 30, 2021, net unrealized gains, before income tax, in connection with our investment in equity instruments of unconsolidated entities were $2,114,970. See Note 5 of the notes to condensed consolidated financial statements for more details.
Other Non-operating Expenses, Net
For the three months ended September 30, 2021, consolidated other non-operating income was $9,559, compared to consolidated other non-operating expenses (including litigation settlements) of $55,000 for the three months ended October 31, 2020.
Provision for (Benefit from) Income Taxes
Income tax (benefit) provision include current and deferred income taxes for both our domestic and foreign operations. Income from our international operations is subject to taxation in the countries in which we had revenuesoperate.
We use the recognition and measurement provisions of $960,182, costthe FASB ASC Topic 740, Income Taxes (“Topic 740”) to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence should be commensurate with the extent to which it can be objectively verified. As a result, we reviewed the operating results, as well as all positive and negative evidence related to realization of such deferred tax assets to evaluate the need for a valuation allowance in each tax jurisdiction. In evaluating the US and South Korea markets, it was determined a valuation allowance should be placed on each market as of September 30, 2021.
During the three months ended September 30, 2021, the Company recognized a consolidated current federal income tax benefit of $505,834, net of a valuation allowance recognized of $437,159, a consolidated deferred income tax benefit of $795,712 and a consolidated provision for state and local taxes of $47,412. During the three months ended October 31, 2020, the Company recognized a consolidated current federal income tax benefit of $37,489, a consolidated provision for state and local taxes of $196,327 and a consolidated deferred income tax benefit of $501,156.
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Net Earnings (Loss) and Earnings (Loss) per Share
As a result of the foregoing, for the three months ended September 30, 2021, consolidated net loss was $2.7 million, compared to consolidated net earnings of $2.2 million for the three months ended October 31, 2020. For the three months ended September 30, 2021, diluted loss per share was $0.01, compared to diluted earnings per share of $0.01 for the three months ended October 31, 2020.
The Six Months Ended September 30, 2021, compared to the Six Months Ended October 31, 2020
Net Sales
For the six months ended September 30, 2021 (183 days), consolidated net sales decreased $20.3 million, or 49.0%, to $21.1 million, compared to the six months ended October 31, 2020 (184 days). The decrease in consolidated net sales mainly reflects: (a) continuation of the decline in consumer orders experienced by our direct-to-consumer subsidiaries since the fourth quarter of the fiscal year 2020, (b) a decline, experienced by our direct-to-consumer subsidiaries, in independent distributor orders, in the number of new independent distributors, and in the number of continuing active distributors, resulting, in part, from recent product reformulations and increased competition for independent distributors, (c) the generally adverse impact on consumer buying trends resulting from the COVID global health emergency and actions taken to help mitigate the spread of the virus in the geographies in which we operate, and (d) one fewer day of sales, or approximately $224,700. This decrease was partially offset by sales (approximately $4.6 million) of $673,551,health and wellness products introduced since October 31, 2020, by sales (approximately $2.4 million) of our new weight management systems, and by sales (approximately $1.2 million) of our subsidiary operating in South Korea. In efforts to restore strong sales growth, we have developed and launched our new business brand, “The Happy Co TM,” at our Elevacity division, have accelerated our previously announced initiatives to expand operations into additional international geographies, and our subsidiaries have intensified their efforts to recruit, develop and reward their distributors and their efforts reach new consumers, including through the continued introduction of new products.
We believe there continues to be significant uncertainty about the potentially adverse impact of the current health crisis on the economies and employment markets in several countries, including the U.S. and other countries where we operate. Please see Overview - Significant Uncertainty Regarding the Potential Impact of Ongoing COVID Health Crisis above.
The $20.3 million decrease in consolidated net sales reflects a decrease in number of comparable product units sold and in the average unit selling prices.
During the six months ended September 30, 2021, approximately 85% of consolidated net sales were from our Elevate health and wellness product line and approximately 14% from the sale of our weight management systems. During the six months ended October 31, 2020, approximately 99% of consolidated net sales from the Elevate health and wellness product line.
During the six months ended September 30, 2021, approximately 69% of consolidated net sales were to consumers (including approximately 32% to recurring customers, which we refer to as “SmartShip” sales, and approximately 37% were to new customers) and approximately 31% of consolidated net sales were to independent distributors.
Gross Profit
For the six months ended September 30, 2021, consolidated gross profitsprofit decreased $15.6 million, or 51.3%, to $14.8 million, compared to the six months ended October 31, 2020, and consolidated gross margins were 70.2% and 73.5%, respectively. For the six months ended September 30, 2021, gross margin was adversely affected by an increase in our provision for excess (slow-moving) inventory $301,788 and a shift in product sales mix (to lower margin products) in the normal course of $286,631,business.
Selling and operatingMarketing Expenses
For the six months ended September 30, 2021, consolidated selling and marketing expenses decreased $8.2 million to $10.2 million, or 48.2% of consolidated net sales, compared to $18.4 million, or 44.4% of consolidated net sales, for the six months ended October 31, 2020. The decrease in consolidated selling and marketing expenses is due to lower sales commissions of $8.2 million (which reflects decrease in consolidated net sales discussed above).
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General and Administrative Expenses
For the six months ended September 30, 2021, consolidated general and administrative expenses (which include corporate employee compensation and benefits, stock-based compensation, professional fees, rent and other occupancy costs, certain consulting fees, telephone and information technology expenses, insurance premiums, and other administrative expenses) decreased $789,476, to $10.3 million, or 48.7% of consolidated net sales, compared to $11.1 million, or 26.8% of consolidated net sales, for the six months ended October 31, 2020. The decrease in consolidated general and administrative expenses was due to lower stock-based compensation expense of $2.5 million, and lower employee compensation and compensation-related benefits of $363,938, partially offset by higher consulting and professional fees of $1.0 million and by higher other general corporate administrative expenses of $312,083,$1.0 million.
Interest Expense, Net
For the six months ended September 30, 2021, consolidated interest expense was $1,196,089, excluding amortization of debt discount of $4,390,417, amortization of deferred financing costs of $487,226, and interest income of $17,360. Consolidated interest expense of $1,196,089 reflects $1,170,411 associated with borrowings under the $30.0 million loan from “DSSI”.
For the six months ended October 31, 2020, consolidated interest expense was $11,390, excluding amortization of debt discount of $10,242 and interest income of $4,234. Consolidated interest expense of $11,390 includes $4,760 associated with borrowings under short-term financing arrangements (including borrowing under the PPP Loan discussed under Short-term Borrowings and Convertible Notes below) and $3,025 associated with our convertible notes.
Gain (loss) on employee warrants liability
For the three months ended September 30, 2021, and three months ended October 31, 2020, consolidated compensatory gain in connection with employee warrants with a variable exercise price after service was completed were $1,781,100 and $906,375, respectively.
Gain on Extinguishment of Debt
In June 2021, Sharing Services’ borrowings under the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) were forgiven pursuant to the CARES Act. The Company recognized a gain on extinguishment of debt of approximately $1.0 million, before income tax, in connection therewith.
Unrealized Gains (Losses) on Investment in Unconsolidated Entities
For the six months ended September 30, 2021, net unrealized gains, before income tax, in connection with our investment in equity instruments of unconsolidated entities were $2,114,970. See Note 5 of the notes to condensed consolidated financial statements for an operatingmore details.
Other Non-operating Expenses, net
For the six months ended September 30, 2021, consolidated other non-operating expenses (including litigation settlements) were $14,046. For the six months ended October 31, 2020, consolidated other non-operating expenses (including litigation settlements) were $133,822, including a loss of $25,452. Our other expenses totaled $3,573,603, giving us$113,822 from the settlement of legal claims and related legal expenses.
Provision for (Benefit from) Income Taxes
Income tax (benefit) provision include current and deferred income taxes for both our domestic and foreign operations. Income from our international operations is subject to taxation in the countries in which we operate.
We use the recognition and measurement provisions of the FASB ASC Topic 740, Income Taxes (“Topic 740”) to account for income taxes. The provisions of Topic 740 require a totalcompany to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence should be commensurate with the extent to which it can be objectively verified. As a result, we reviewed the operating results, as well as all positive and negative evidence related to realization of such deferred tax assets to evaluate the need for a valuation allowance in each tax jurisdiction. In evaluating the US and South Korea markets, it was determined a valuation allowance should be placed on each market as of September 30, 2021.
During the six months ended September 30, 2021, the Company recognized a consolidated provision for current federal income taxes of $940,117, net of a valuation allowance recognized of $1,866,779, a consolidated provision for state and local taxes of $67,310, and a consolidated deferred income tax benefit of $1,513,672. During the six months ended October 31, 2020, the Company recognized a consolidated provision for current federal income taxes of $278,585, a consolidated provision for state and local taxes of $314,313 and a consolidated deferred income tax benefit of $66,621.
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Net Earnings (Loss) and Earnings (Loss) per Share
As a result of the foregoing, for the six months ended September 30, 2021, consolidated net loss was $6.3 million, compared to consolidated net earnings of $3,599,055.$1.2 million for the six months ended October 31, 2020. For the six months ended September 30, 2021, diluted loss per share was $0.03, compared to diluted earnings per share of $0.01 for the six months ended October 31, 2020.
Since May 5, 2017 (inception) through JanuaryLiquidity and Capital Resources
We broadly define liquidity as our ability to generate sufficient cash, from internal and external sources, to meet our obligations and commitments. We believe that, for this purpose, liquidity cannot be considered separately from capital resources.
Working Capital
Consolidated working capital (total current assets minus total current liabilities) was $29.6 million and $3.5 million as of September 30, 2021, and March 31, 2018,2021, respectively,
As of September 30, 2021, consolidated cash and cash equivalents were $28.8 million. Based upon the Company has had revenuescurrent level of $960,182, costs of sales of $673,551, gross profits of $286,631,operations and operating expenses of $2,433,680, for an operating loss of $2,157,049. Our other expenses totaled $4,819,389, giving us a total net lossanticipated investments necessary to grow our business, we believe that existing cash balances and accumulated losses since inception of $6,976,438.
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Operating Expenses and Loss from Operations
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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 |
During the Quarter ended January 31, 2018 our lossanticipated funds from operations and operating expenses was $25,452.will likely be sufficient to meet our working capital requirements over the next 12 months.
Since inception (Mar 5, 2017) through January 31, 2018,Historical Cash Flows
Historically, our loss from operations and operating expenses were $2,157,049, primarily from marketing expensesprimary sources 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 made to a related party, who was a significant shareholder 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 tocash have been capital transactions involving the issuance of 1,500,000 sharesequity securities and secured and unsecured debt (See “Recent Issuances of common stock, to consultant, at a deemed value of $0.695 per shareEquity Securities” and the issuance of 1,065,790 shares of Series A“Short-term Borrowings and 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 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 January 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.
Liquidity and Capital Resources
The following tables present selected financial information on our capitalNotes” below) and cash flows asfrom operating activities; and our primary uses of cash have been for our subsidiaries’ operating activities, capital expenditures, acquisitions, net cash advances to related parties, and debt repayments in the ordinary course of our business.
The following table summarizes our cash flow activities for the periodsix months ended JanuarySeptember 30, 2021, compared to the six months ended October 31, 2018:2020:
| January 31, | |
| 2018 | |
Current Assets | $ | 930,833 |
Current Liabilities |
| 5,989,362 |
Working Capital Deficiency | $ | 5,058,529 |
| Six Months Ended | ||||||||||||
| September 30, 2021 | October 31, 2020 | Increase (Decrease) | ||||||||||
| Net cash used in operating activities | $ | (10,160,196 | ) | $ | (3,789,689 | ) | $ | (6,370,507 | ) | |||
| Net cash used in investing activities | (3,188,679 | ) | (467,126 | ) | 2,721,553 | |||||||
| Net cash provided by financing activities | 30,034,625 | 3,160,588 | 26,874,037 | |||||||||
| Impact of currency rate changes in cash | 11,124 | - | 11,124 | |||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 16,696,874 | $ | (1,096,227 | ) | $ | 17,793,101 | |||||
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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 inFor 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.
Netsix months ended September 30, 2021, net cash used in operating activities duringwas $10.2 million, compared to $3.8 million for the periodsix months ended JanuaryOctober 31, 20182020. The $6.4 million decrease was $1,156,392, which consisteddue to a decrease in profitability of $10.2 million, excluding non-cash items, such as depreciation and amortization, stock-based compensation expense, provision for obsolete inventory losses, amortization of debt discount, losses on impairment of investments in unconsolidated entities and a net loss of $6,976,438, reducednote receivable, and estimated settlement liability. This change was partially offset by net non-cash expenses of $6,070213, and net changechanges in operating assets and liabilities of $250.967.$3.8 million.
Net Cash Used in Investing Activities
For the six months ended September 30, 2021, net cash used in investing activities was $3.2 million, compared to $467,126 for the resultsix months ended October 31, 2020. The $2.7 million decrease was due to higher payments for acquisitions of $2.9 million and lower net cash retained incollection of notes receivable of $129,729, partially offset by lower capital expenditures and capitalizable costs related to ongoing upgrades to our information technology systems of $336,776 and lower payments for intangible assets of $8,400.
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Net Cash Provided by Financing Activities
For the merger with Total Travel Media of $57,605 and less $15,000 paid for an equity investment and investment in Property and Equipment of $43,111
Netsix months ended September 30, 2021, net cash provided by financing activities was $30.0 million, compared to $3.2 million for the six months ended October 31, 2020. The $26.9 million increase was mainly due to higher net proceeds ($29.0 million) from proceeds on issuanceborrowings under short-term financing arrangements and/or convertible promissory notes (including borrowings from DSSI in the six months ended September 30, 2021) and lower repurchases of a convertible notes for $544,000,common stock of $899,500, partially offset by proceeds from a promissory note from a related partyissuances of $50,000, proceeds from stock subscriptionof $3.0 million in 2020.
Impact of currency rate changes in cash
Prior to April 1, 2021, substantially all consolidated net sales were denominated in U.S. dollars. Effective April 1, 2021, the Company’s consolidated financial statements reflect the operation of our wholly owned subsidiaries operating in the Asia Pacific region. See Note 1 of the Notes to Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report for information about our translation of foreign currency financial statements.
Legal Proceedings
The information contained in Note 12, Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements located elsewhere in this Quarterly Report is incorporated herein by reference.
Potential Future Acquisitions
The Company, directly and through its subsidiaries, may make strategic acquisitions and purchases of equity interests in businesses that complement its business competencies and growth strategy. Such acquisitions and purchases of equity interests are expected to be funded with cash and cash equivalents, cash provided by operations, if any, and issuance of Series C Preferredequity securities and debt.
Recent Issuances of Equity Securities
Common Stock
During the six months ended September 30, 2021:
| ● | Sharing Services issued to DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan Origination Fee discussed above and 12,000,000 shares in prepayment of interest for the first year in connection with the related party loan discussed below, |
| ● | Sharing Services issued 10,000 shares of its Class A Common Stock upon the conversion of 10,000 shares of the its Series C preferred stock, and |
| ● | Sharing Services issued 500,000 shares of its Class A Common Stock upon the exercise of employee stock warrants. |
Short-term Borrowings and Convertible Notes
Borrowing Under Financing Arrangements (Note Payable)
In May 2020, Sharing Services was granted a loan (the “PPP Loan”) by a commercial bank in the amount of $1.0 million, pursuant to the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”). The Company’s borrowings under the PPP Loan were eligible for $853,500, $849 proceeds fromloan forgiveness under the provisions of the CARES Act. In June 2021, the Company was formally notified by the lender that the Company’s obligations under the loan have been forgiven effective May 25, 2021. The loan forgiveness applies to all principal and interest accrued through the loan forgiveness effective date. See Note 1, Description of Operations and Basis of Presentation – Note Payable, of the Notes to Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report for more information about the PPP Loan.
Convertible Notes Held by Related Parties
Decentralized Sharing Systems, Inc.
On April 5, 2021, Sharing Services and Decentralized Sharing Systems, Inc. (“DSSI”) entered into a related party,Securities Purchase Agreement, pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share, and DSSI loaned to the Company $30.0 million. Under the terms of the loan, the Company agreed to pay to DSSI a loan Origination Fee of $3.0 million, payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. The Note bears interest at the annual rate of 8% and matures on April 5, 2024, subject to certain acceleration provisions upon the occurrence of an Event of Default, as defined in the Note. At any time during the term of the Note, all or part of the Note, including principal, less unamortized prepaid interest, if any, plus any accrued interest and other fees can be converted into shares of the Company’s Class A Common Stock at the rate of $0.20 per share, at the option of the holder.
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HWH International, Inc.
In October 2017, Sharing Services issued a repaymentConvertible Promissory Note in the principal amount of $15,000$50,000 (the “Note”) to HWH International, Inc (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Company. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. As of the date of this Quarterly Report, the Company and HWH are jointly reviewing the Note and the detachable stock warrant. The number of shares that HWH may acquire upon conversion of the HWH Note and exercise of the detachable stock warrant may be greater than the amounts described in this paragraph, depending on a promissory note and repaymentsthe results of such review.
Convertible Note Payable, Other
As of September 30, 2021, convertible notes payable also include a note in the amount of $101,000.
Capital Resources
We currently have limited cash resources on hand$100,000 held by an unaffiliated lender. As of the date of this Quarterly Report, the Company 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 developmentholder of our business.
Off Balance Sheet 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 establishedthe note are discussing options for the purposenote holder to convert a portion of facilitating off-balance sheet arrangements orthe note and for the Company to settle the remainder of the note. The Company intends to conclude these discussions and to settle the April 2018 Note in the foreseeable future. See Note 6 of the Notes to Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report for more information.
Capital Requirements
During the six months ended September 30, 2021, consolidated capital expenditures for property and equipment (consisting of furniture and fixtures, computer equipment and software, other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt,office equipment 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 engagedleasehold improvements) 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 our business were $223,300.
Contractual Obligations
There were no material changes to contractual cash obligations during the six months ended September 30, 2021, except for (a) the issuance of the $30.0 million convertible promissory note in favor of Decentralized Sharing Systems, Inc. in connection with the related-party loan discussed above and (b) the May 2021 forgiveness of the PPP loan obligation under the CARES Act as discussed above.
Off-Balance Sheet Financing Arrangements
As of September 30, 2021, we had no off-balance sheet financing arrangements.
Inflation
We believe inflation did not have made a number of estimates and assumptions relating to the reporting ofmaterial effect on our consolidated results of operations and financial conditionduring the periods presented in this Quarterly Report.
Critical Accounting Estimates
While the Company is not aware of material changes to its critical accounting estimates or assumptions since March 31, 2021, it is reasonably possible that estimates made in the preparation of ourCompany’s consolidated 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, oftenhave been, or will be, materially impacted 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 thatultimate resolution of the stock-based compensation recorded for preferred stock issued,uncertainties associated with the COVID health crisis. This may include estimates regarding losses on inventory, impairment losses related to long-lived assets, the nature and timing of satisfaction of performance obligations resulting from contracts with customers, and the fair valuevaluation of embedded conversion options that are convertible into a variable amountloss contingencies. Please see Overview - Significant Uncertainty Regarding the Potential Impact of shares,Ongoing COVID Health Crisis above.
Accounting Changes 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 financialRecent Accounting Pronouncements
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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-average 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, 2018.
Convertible Notes
Convertible notes are regarded as compound instruments, consisting of a liability component 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 - Significant Accounting Policies and Note 7 - Derivative Liabilities in the unaudited condensed consolidated financial statements that are included in this Report.
Recent accounting pronouncements
For discussion of recently issuedaccounting changes and recent accounting pronouncements, please see Note 21 of the Notes to the unaudited condensed consolidated financial statements includedCondensed Consolidated Financial Statements contained elsewhere in this report.Quarterly Report.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We areThe Company is a smaller reporting companySmaller Reporting Company, as defined byin Rule 12b-2 of the Exchange Act, and, areaccordingly, is 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(“Interim CFO”), conducted an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures. The material weaknesses in our disclosure control procedures are as follows:of September 30, 2021.
1.Lack of formal policies and procedures necessary to adequately review significant accounting transactions.We utilize a third party independent contractor for the preparationCertifications of our financial statements. AlthoughCEO and our Interim CFO, which are required in accordance with Rule 13a-14 of the financial statementsExchange Act, are attached as exhibits to this Quarterly Report. This “Controls and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactionsProcedures” section discusses the above-described Certifications and the accounting treatmentevaluation of “disclosure controls” referred to therein. Accordingly, this section should be read in conjunction with such transactions. The third partyCertifications.
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independent contractor is not involved in our day to day operations and may not be provided information from our managementLimitations on a timely basis to allow for adequate reporting/considerationthe Effectiveness of certain transactions.
2Controls. .Audit Committee and Financial Expert. We do not have an audit committee with a financial expertexpect that our disclosure controls and thus, we lackprocedures will prevent all errors and all fraud. Any system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the appropriate oversightobjectives of the system will be 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 financial reporting process.Company will be detected. Furthermore, because the design of any system of controls and procedures is based in part upon assumptions about the likelihood of future events, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements and/or omissions due to error or fraud may occur undetected.
Scope of the Controls Evaluation. The above-described evaluation of our disclosure controls and procedures included a review of (a) their objectives and design, (b) our implementation of the controls and procedures and (c) the effect of the controls and procedures upon the information generated for 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 sought to confirm that necessary corrective action, including process improvement, followed. We intendperform this type of evaluation on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can accompany our Quarterly Reports on Form 10-Q and our Annual Report on Form 10-K.
Conclusions regarding Disclosure Controls. Based upon the aforementioned evaluation of our disclosure controls and procedures, our CEO and Interim CFO concluded that, as of September 30, 2021, we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to initiate measuresbe disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to remediate the identified material weaknesses,our management, including but not necessarily limitedour CEO and Interim CFO, as appropriate to the following:allow timely decisions regarding required disclosure.
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Changes in Internal Control Overover Financial ReportingReporting.
There wereDuring 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 not involvedThe information contained in any pending litigation or legal proceeding.Note 12, Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements located elsewhere in this Quarterly Report is incorporated herein by reference.
Item 1A. Risk Factors.
WeThe factors contained in ITEM 1A, — “Risk Factors” in our Transition Report on Form 10-K for the transition period ended March 31, 2021, are a smaller reporting company as definedincorporated herein by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.reference.
Item 2. Unregistered Sales of Securities and Use of Proceeds.
(a) Unregistered Sales of unregistered securities bySecurities
In 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 January 31, 2018, theSeptember 30, 2021, Company issued 3,680,000 restrictedto its employees 500,000 shares of its Series C PreferredClass A Common Stock in connection with the exercise of employee stock warrants. Proceeds from such exercise of stock warrants were used for general operations.
Except as stated above, in connection with the transactions described in the preceding paragraph, no underwriters were involved, and received subscriptions for an additional 64,000 shares of Series C Preferred Stock, all pursuant to an offering by means of a private placement memorandum. Each of the aforementioned sales of securitiesissuances were made in reliance uponon the exemption offered under Section 4(2)from the registration requirements of the Securities Act provided under Section 4(a)(2) thereof.
(b) Not applicable
(c) Purchases of 1933.Equity Securities by the Issuer and Affiliated Purchasers
None
Item 3. Defaults Upon Senior Securities.
None(a) Not applicable
(b) Not applicable
Item 4. Mining Safety Disclosures.
NoneNot applicable
Item 5. Other Information.
NoneOn July 29, 2021, the Company and RSJ BUILT, LLC, a Utah limited liability company, entered into a Purchase Agreement pursuant to which the Company intends to purchase a certain real property located in the State of Utah and consisting of an office building and certain office equipment therein, subject to certain significant limiting conditions, including, among other things: (a) the delivery to the Company by Alset Title Company, Inc. of an Owner’s Policy of Title Insurance, (b) the delivery to the Company by the seller of certain specified documentation about the property, and (c) the Company’s completion of such due diligence with regards to the transaction as the Company may deem necessary, within the due diligence period specified in the agreement. The purchase price is anticipated to be approximately $8.8 million.
Pursuant to the agreement, Alset Title Company, Inc. would also act as escrow and closing agent for the transaction. Alset Title Company, Inc. is a subsidiary of DSS. Inc. (formerly Document Security Systems, Inc.) which, together with another of DSS’ subsidiaries, is a major shareholder of the Company. The Company expects the transaction to close in its third fiscal quarter.
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Item 6. Exhibits.
The following exhibits are incorporated intofiled as part of this Form 10-Q Quarterly Report:Report unless otherwise indicated:
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33SIGNATURES
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 GLOBAL CORPORATION | ||
| (Registrant) | ||
| Date: November 12, 2021 | ||
| By: | /s/ John Thatch | |
| John Thatch | ||
| President,
and Vice Chairman of the Board of Directors | ||
| (Principal Executive Officer) | ||
| Date: November 12, 2021 | ||
| By: | /s/
John Thatch | |
| John Thatch | ||
| Interim Chief Financial Officer | ||
| (Principal Financial
| ||
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