UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended:OctoberJanuary 31, 20192020

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number000-55997

 

SHARING SERVICES 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 100, Plano, Texas 75075
(Address of principal executive offices) (Zip Code)

 

(469) 304-9400

(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: None

 

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

 

 Title of each class 
 Common Stock, $0.0001 par value per share 

 

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 [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer[  ] Accelerated filer[  ] 
Non-accelerated filer[  ] Smaller reporting company[X] 
   Emerging growth company[X] 

 

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 [  ] No [X]

 

As of December 10, 2019,March 9, 2020, there were 123,272,386126,072,386 shares of the issuer’s class A common stock and 10,000,000 shares of the issuer’s class B common stock outstanding.

 

 

  

 
 

 

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION 
Item 1. Financial Statements5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations2122
Item 3. Quantitative and Qualitative Disclosures About Market Risk2729
Item 4. Controls and Procedures2729
  
PART II—OTHER INFORMATION 
Item 1. Legal Proceedings2830
Item 1A. Risk Factors2932
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds3032
Item 3. Defaults Upon Senior Securities3032
Item 4. Mine Safety Disclosures3032
Item 5. Other Information3032
Item 6. Exhibits3133

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.

 

cautionary notice regarding forward-looking statements

 

Statements in this Quarterly Report and in any documents incorporated by reference herein which are not purely historical, facts, or which depend upon future events, may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (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”“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. Such risks and uncertainties include, but are not limited to, risks and uncertainties concerning:

 

 Our dependence upon a direct selling system to distribute our products, and the highly competitive and dynamic nature of the direct selling industry;
   
 The potential adverse effect of the loss of a high-level distributor or a significant number of distributors for causes out of our control;
   
 The potential adverse effect upon our sales resulting from recent changes to our sales commission program and potential changes to our sales commission program in the future;
   
 The success of our growth initiatives, including our efforts to attract and retain new customers and our efforts to generate recurring customer orders, which we call “SmartShip” orders;
   
 The success of our initiatives to build brand awareness;
   
 Our ability to anticipate and effectively respond to changes in consumer preferences and buying trends;
   
 The timing and customer acceptance of new products we introduce;
   
 Our ability to attract and retain talented employees and management;
   
 Our ability to effectively manage and control our operating expenses;
   
 Our quarterly financial performance and potential fluctuations therein;
   
 Our ability to generate sustained, positive cash flows from operations with which to fund our working capital needs, including servicing our debt;debt, now and in the future;
   
 Our ability to obtain additional financing with which to implement our business strategies;
   
 Our ability to attract and retain reliable key personalities to successfully promote our products, image and brands, and the potential for negative publicity to affect a key personality engaged in promoting our products, image and brands;
   
 Our ability to maintain a positive image and brand acceptance in the often changing and unpredictable social media environment;
   
 Our dependence on one supplier for a substantial amount of the products we sell and the potential for material disruptions in our supply chain or potential increases in the prices of the products we purchase beyond what we can pass along to our customers;
   
 Our ability to comply with current laws and regulations or our becoming subject to new or more stringent laws and regulations in the future, including applicable laws and regulations in jurisdictions outside the United States;
   
 Our ability to register our trademarks and successfully protect our intellectual property rights;
   
 Our potential unintended infringement on the intellectual property rights of others;
   
 The potential impact if products sold by us were found to be defective in labeling or content;
   
 The costs and effects of litigation and other claims;

Recent product reformulations and/or potential product reformulations in the future could adversely affect demand for our products and our sales in the future;
   
 Potential product liability claims in the future could harm our business;
 Our ability to successfully identify acquisition candidates or to successfully finance, complete and integrate desirable acquisitions;
   
 Our ability to expand into foreign markets and to successfully address any resulting exposure to foreign exchange rate fluctuations and other risks inherent to foreign operations;
   
 Our high reliance on the use of information technology and our ability to effectively and cost-efficiently respond to any disruption in our information technology systems and/or any acts of cyberterrorism;
   
 Our ability to effectively and cost-efficiently respond to any natural disasters, and/epidemics and other health emergencies, or acts of violence or terrorism that may affect our customers and/or our business;
   
 Our ability to comply with the financial reporting requirements contained in U.S. securities laws and regulations and, as such, maintain investor confidence in our financial reporting;
   
 If securities or industry analysts do not publish research or reports about our business, if our operating results do not meet their expectations, or if they adversely change their recommendations regarding our common stock, our stock price and trading volume could remain stagnant or decline;
   
 If we do not maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our securities;
   
 Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud;
   
 Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be our stockholders’ soleonly source of gain;
   
 The potential for future sales and issuances of our common stock and/or rights to purchase our common stock, including pursuant to our equity incentive plans, to result in a material dilution of our stockholders’ percentage ownership and, in turn, ain stagnation or decline in the trading price decline forof our stock; and
   
 Our ability to successfully absorb the increased financial, operational and compliance costs of operating as a public company.

 

4
 

 

PART I—FINANCIAL INFORMATION

  

Item 1. Financial Statements.

 

The following condensed consolidated balance sheets as of OctoberJanuary 31, 20192020 and April 30, 2019, the condensed consolidated statements of operations for the three and sixnine months ended OctoberJanuary 31, 20192020 and 2018,2019, and the condensed consolidated statements of cash flows and condensed consolidated statements of stockholders’ equity (deficit) for the sixnine months ended OctoberJanuary 31, 20192020 and 20182019 are those of Sharing Services Global Corporation and subsidiaries.

 

Index to Unaudited Condensed Consolidated Financial Statements

 

 Page
  
Condensed consolidated balance sheets as of OctoberJanuary 31, 20192020 and April 30, 20196
  
Condensed consolidated statements of operations for the three and sixnine months ended OctoberJanuary 31, 20192020 and 201820197
  
Condensed consolidated statements of cash flows for the sixnine months ended OctoberJanuary 31, 20192020 and 201820198
  
Condensed consolidated statements of stockholders’ equity (deficit) for the sixnine months ended OctoberJanuary 31, 20192020 and 201820199
  
Notes to the condensed consolidated financial statements10

 

5

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

  January 31, 2020  April 30, 2019 
  (Unaudited)    
ASSETS        
Current Assets        
Cash and cash equivalents $8,182,396  $3,912,135 
Trade accounts receivable, net  4,148,528   4,406,704 
Accounts receivable, related party  3,456,751   3,446,114 
Notes receivable, net  60,000   425,197 
Inventory  6,239,815   2,882,869 
Other current assets  489,716   373,310 
Total Current Assets  22,577,206   15,446,329 
         
Security deposits  35,070   42,670 
Property and equipment, net  329,245   307,524 
Right-of-use assets, net  954,285   - 
Investments in unconsolidated entities  20,000   207,500 
TOTAL ASSETS $23,915,806  $16,004,023 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)        
Current Liabilities        
Accounts payable $610,448  $1,107,786 
Notes payable  -   2,123,208 
Accrued sales commission payable  8,491,081   7,402,659 
Deferred sales revenues  1,855,317   3,209,288 
Settlement liability  2,945,150   - 
Accrued and other current liabilities  4,213,790   2,608,773 
Income taxes payable  500,000   - 
Current portion of convertible notes payable  -   855,000 
Total Current Liabilities  18,615,786   17,306,714 
Lease liability, long-term  529,235   - 
Convertible notes payable, net of unamortized debt discount of $39,264 at January 31, 2020 and $34,433 at April 30, 2019  110,736   15,567 
TOTAL LIABILITIES  19,255,757   17,322,281 
Commitments and contingencies        
Stockholders’ Equity (Deficit)        
Preferred stock, $0.0001 par value, 200,000,000 shares authorized:        
Series A convertible preferred stock, $0.0001 par value, 100,000,000 shares designated; 32,478,750 and 42,878,750 shares issued and outstanding at January 31, 2020 and April 30, 2019, respectively  3,248   4,288 
Series B convertible preferred stock, $0.0001 par value, 10,000,000 shares designated; 10,000,000 shares issued and outstanding  1,000   1,000 
Series C convertible preferred stock, $0.0001 par value, 10,000,000 shares designated; 3,490,000 and 3,520,000 shares issued and outstanding at January 31, 2020 and April 30, 2019, respectively  349   352 
Common Stock, $0.0001 par value, 500,000,000 Class A shares authorized, 126,072,386 shares and 104,077,061 shares issued and outstanding at January 31, 2020 and April 30, 2019, respectively  12,607   10,408 
Common Stock, $0.0001 par value, 10,000,000 Class B shares authorized, 10,000,000 shares issued and outstanding  1,000   1,000 
Additional paid in capital  37,562,131   31,870,020 
Shares to be issued  11,785   21,000 
Stock subscriptions receivable  (114,405)  (114,405)
Accumulated deficit  (32,817,666)  (33,111,921)
Total Stockholders’ Equity (Deficit)  4,660,049   (1,318,258)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) $23,915,806  $16,004,023 

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

6
 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

  October 31, 2019  April 30, 2019 
  (Unaudited)    
ASSETS        
Current Assets        
Cash and cash equivalents $12,789,974  $3,912,135 
Trade accounts receivable, net  4,387,652   4,406,704 
Accounts receivable, related party  3,456,751   3,446,114 
Notes receivable, net  106,404   425,197 
Inventory  4,413,243   2,882,869 
Other current assets  347,129   373,310 
Total Current Assets  25,501,153   15,446,329 
         
Security deposits  35,070   42,670 
Property and equipment, net  335,511   307,524 
Right-of-use assets, net  1,087,192   - 
Investments in unconsolidated entities  20,000   207,500 
TOTAL ASSETS $26,978,926  $16,004,023 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)        
Current Liabilities        
Accounts payable $1,633,937  $1,107,786 
Notes payable  115,385   2,123,208 
Accrued sales commissions payable, including, $1,290,599 at October 31, 2019 and $1,365,705 at April 30, 2019, payable with stock warrants  10,649,233   7,402,659 
Deferred sales revenues  4,095,987   3,209,288 
Settlement liability  2,903,956   - 
Accrued and other current liabilities  4,282,345   2,608,773 
Income taxes payable  275,000   - 
Current portion of convertible notes payable  100,000   855,000 
Total Current Liabilities  24,055,843   17,306,714 
Lease liability, long-term  655,412   - 
Convertible notes payable, net of unamortized debt discount of $29,395 at October 31, 2019 and $34,433 at April 30, 2019  20,605   15,567 
TOTAL LIABILITIES  24,731,860   17,322,281 
Commitments and contingencies        
Stockholders’ Equity (Deficit)        
Preferred stock, $0.0001 par value, 200,000,000 shares authorized:        
Series A convertible preferred stock, $0.0001 par value, 100,000,000 shares designated; 32,478,750 and 42,878,750 shares issued and outstanding at October 31, 2019 and April 30, 2019, respectively  3,248   4,288 
Series B convertible preferred stock, $0.0001 par value, 10,000,000 shares designated; 10,000,000 shares issued and outstanding  1,000   1,000 
Series C convertible preferred stock, $0.0001 par value, 10,000,000 shares designated; 3,470,000 and 3,520,000 shares issued and outstanding at October 31, 2019 and April 30, 2019, respectively  347   352 
Common Stock, $0.0001 par value, 500,000,000 Class A shares authorized, 123,272,386 shares and 104,077,061 shares issued and outstanding at October 31, 2019 and April 30, 2019, respectively  12,328   10,408 
Common Stock, $0.0001 par value, 10,000,000 Class B shares authorized, 10,000,000 shares issued and outstanding  1,000   1,000 
Additional paid in capital  37,529,412   31,870,020 
Shares to be issued  11,785   21,000 
Stock subscriptions receivable  (114,405)  (114,405)
Accumulated deficit  (35,197,649)  (33,111,921)
Total Stockholders’ Equity (Deficit)  2,247,066   (1,318,258)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) $26,978,926  $16,004,023 

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

  Three Months Ended October 31,  Six Months Ended October 31, 
  2019  2018  2019  2018 
Net sales $38,850,453  $17,973,379  $74,332,371  $30,904,105 
Cost of goods sold  11,436,308   6,800,413   21,487,765   11,764,423 
Gross profit  27,414,145   11,172,966   52,844,606   19,139,682 
Operating expenses                
Selling and marketing expenses  19,015,783   8,169,895   34,843,882   14,214,252 
General and administrative expenses  4,517,530   2,136,269   14,143,732   3,721,456 
Total operating expenses  23,533,313   10,306,164   48,987,614   17,935,708 
Operating earnings  3,880,832   866,802   3,856,992   1,203,974 
Other income (expense)                
Interest expense, net  (145,787)  (626,028)  (471,737)  (1,028,615)
Interest income, related party  138,546   -   138,546   - 
Litigation settlements and other non-operating expenses  (4,029,813)  -   (4,234,529)  - 
Change in fair value of derivative liabilities  -   29,910,472   -   29,884,636 
Total other income (expense), net  (4,037,054)  29,284,444   (4,567,720)  28,856,021 
Earnings (loss) before income taxes  (156,222)  30,151,246   (710,728)  30,059,995 
Income tax provision  1,075,000   -   1,375,000   - 
Net earnings (loss) $(1,231,222) $30,151,246  $(2,085,728) $30,059,995 
Earnings (loss) per share:                
Basic $(0.01) $0.45  $(0.02) $0.45 
Diluted $(0.01) $0.08  $(0.02) $0.10 
Weighted average shares:                
Basic  132,500,548   67,146,971   128,185,221   66,854,138 
Diluted  132,500,548   392,505,479   128,185,221   291,913,008 

  Three Months Ended January 31,  Nine Months Ended January 31, 
  2020  2019  2020  2019 
Net sales $31,644,404  $25,950,235  $105,976,774  $56,854,340 
Cost of goods sold  9,517,301   8,358,199   31,005,065   20,122,622 
Gross profit  22,127,103   17,592,036   74,971,709   36,731,718 
Operating expenses                
Selling and marketing expenses  14,263,421   13,428,906   49,107,303   27,643,158 
General and administrative expenses  5,249,621   6,264,078   19,393,353   9,982,743 
Total operating expenses  19,513,042   19,692,984   68,500,656   37,625,901 
Operating earnings (loss)  2,614,061   (2,100,948)  6,471,053   (894,183)
Other income (expense)                
Interest expense, net  (49,377)  (437,155)  (521,113)  (1,465,771)
Interest income, related party  67,520   -   206,066   - 
Litigation settlements and other non-operating income (expense)  (27,222)  (79,620)  (4,261,751)  (82,320)
Change in fair value of derivative liabilities  -   -   -   29,884,545 
Total other income (expense), net  (9,079)  (516,775)  (4,576,798)  28,336,454 
Earnings (loss) before income taxes  2,604,982   (2,617,723)  1,894,255   27,442,271 
Income tax provision  225,000   -   1,600,000   - 
Net earnings (loss) $2,379,982  $(2,617,723) $294,255  $27,442,271 
Earnings (loss) per share:                
Basic $0.02  $(0.03) $0.00  $0.39 
Diluted $0.01  $(0.03) $0.00  $0.12 
Weighted average shares:                
Basic  133,272,386   77,603,622   125,535,104   70,437,299 
Diluted  211,396,550   77,603,622   246,571,574   232,791,207 

 

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

 Six Months Ended October 31,  Nine Months Ended January 31, 
 2019 2018  2020  2019 
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net earnings (loss) $(2,085,728) $30,059,995 
Net earnings $294,255  $27,442,271 
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:                
Depreciation and amortization  111,550   31,910 
Depreciation and amortization, including amortization of right-of-use assets of $448,291  535,900   54,760 
Stock-based compensation expense  5,640,252   44,000   5,640,252   3,286,831 
Amortization of debt discount  373,276   845,011   388,917   1,066,612 
Loss on prepayment of convertible notes  -   123,435 
Loss (gain) on extinguishment of debt  (13,972)  123,435 
Loss on impairment of notes receivable  313,794   -   360,197   - 
Estimated settlement liability  2,945,150   - 
Loss on impairment of investments and other  226,234   -   228,637   82,320 
Change in fair value of derivative liabilities  -   (29,884,636)  -   (29,884,545)
Changes in operating assets and liabilities:                
Accounts receivable  19,052   (1,344,981)  258,176   (3,515,730)
Inventory  (1,530,375)  (783,425)  (3,356,947)  (1,534,779)
Other current assets  26,182   (1,372,448)  (116,405)  (1,329,537)
Security deposits  7,600   (21,615)  7,600   (21,615)
Accounts payable  526,152   (31,275)  (497,338)  278,277 
Income taxes payable  275,000   -   500,000   - 
Lease liability  (377,204)  - 
Accrued and other liabilities  8,224,787   2,958,351   886,228   4,778,102 
Net Cash Provided by Operating Activities  12,127,776   624,322   7,683,446   826,402 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Payments for property and equipment  (114,038)  (130,256)  (150,363)  (203,425)
Due to related parties  (5,637)  53,050   (5,637)  (101,376)
Cash paid for investments  -   (20,000)  -   (20,000)
Net Cash Used in Investing Activities  (119,675)  (97,206)  (156,000)  (324,801)
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from issuance of convertible notes payable  -   325,000   -   325,000 
Repayment of convertible notes payable  (755,000)  (604,435)  (755,000)  (604,435)
Proceeds from promissory notes payable  -   3,189,000 
Repayment of promissory notes payable  (2,502,985)  (1,435,403)
Repurchase of common stock  (500)  -   (500)  - 
Repayment of promissory notes payable  (2,376,062)  - 
Proceeds from issuance of common stock  1,300   83,300 
Net Cash Used in Financing Activities  (3,130,262)  (196,135)
Proceeds from issuance of stock  1,300   159,647 
Net Cash Provided by (Used in) Financing Activities  (3,257,185)  1,633,809 
                
Increase in cash and cash equivalents  8,877,839   330,981   4,270,261   2,135,410 
Cash and cash equivalents, beginning of period  3,912,135   768,268   3,912,135   768,268 
Cash and cash equivalents, end of period $12,789,974  $1,099,249  $8,182,396  $2,903,678 
                
Supplemental cash flow information                
Cash paid for interest $493,708  $155,243  $505,246  $330,365 
Cash paid for income taxes $1,147,620  $-  $1,250,809  $- 
Supplemented disclosure of non-cash investing and financing activities:        
Supplemental disclosure of non-cash investing and financing activities:        
Preferred Stock issued for acquisitions $-  $1,750,000  $-  $1,875,000 
Derivative liability recognized as debt discount  -   325,000  $-  $325,000 
Common stock repurchased in exchange for promissory note $-  $300,000 
Common stock issued upon conversion of interest payable $28,000  $- 
Right-of-use assets recognized as lease liability  1,385,871  $-  $1,385,871  $- 

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

 

8
 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

 

 Series A Preferred Stock Series B Preferred Stock Series C Preferred Stock Class A and Class B
Common Stock
 Additional    Shares      Series A Preferred Stock Series B Preferred Stock Series C Preferred Stock Class A and Class B Common Stock  Additional    Shares     
 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 

to be

Issued

 Accumulated Deficit Total  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 to be Issued Accumulated Deficit Total 
Balance – April 30, 2019  42,878,750  $4,288   10,000,000  $1,000   3,520,000  $352   114,077,061  $11,408  $31,870,020  $(114,405) $21,000  $(33,111,921) $(1,318,258)  42,878,750  $4,288   10,000,000  $1,000   3,520,000  $352   114,077,061  $11,408  $31,870,020  $(114,405) $21,000  $(33,111,921) $(1,318,258)
Common stock issued for cash  -   -   -   -   -   -   30,000   3   7,497   -   (7,500)  -   -   -   -   -   -   -   -   30,000   3   7,497   -   (7,500)  -   - 
Common stock issued for professional or consulting services  -   -   -   -   -   -   215,325   22   11,993   -   (1,715)  -   10,300   -   -   -   -   -   -   215,325   21   56,979   -   (1,715)  -   55,285 
Preferred stock issued for cash  -   -   -   -   20,000   2   -   -   4,998   -   -   -   5,000 
Conversions of preferred stock  (10,400,000)  (1,040)  -   -   (50,000)  (5)  10,450,000   1,045   -   -   -   -   -   (10,400,000)  (1,040)  -   -   (50,000)  (5)  10,450,000   1,045   -   -   -   -   - 
Conversion of interest payable  -   -   -   -   -   -   2,800,000   280   27,720   -   -   -   28,000 
Repurchase of common stock  -   -   -   -   -   -   (1,500,000)  (150)  (350)  -   -   -   (500)  -   -   -   -   -   -   (1,500,000)  (150)  (350)  -   -   -   (500)
Stock-based compensation expense  -   -   -   -   -   -   -   -   5,640,252   -   -   -   5,640,252   -   -   -   -   -   -   -   -   5,595,267   -   -   -   5,595,267 
Stock warrants exercised  -   -   -   -   -   -   10,000,000   1,000   -   -   -   -   1,000   -   -   -   -   -   -   10,000,000   1,000   -   -   -   -   1,000 
Net earnings (loss)  -   -   -   -   -   -   -   -   -   -   -   (2,085,728)  (2,085,728)  -   -   -   -   -   -   -   -   -   -   -   294,255   294,255 
Balance – October 31, 2019  32,478,750  $3,248   10,000,000  $1,000   3,470,000  $347   133,272,386  $13,328  $37,529,412  $(114,405) $11,785  $(35,197,649) $2,247,066 
Balance – January 31, 2020  32,478,750  $3,248   10,000,000  $1,000   3,490,000  $349   136,072,386  $13,607  $37,562,131  $(114,405) $11,785  $(32,817,666) $4,660,049 

 

 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 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 Accumulated Deficit Total 
Balance – April 30, 2018  86,694,540  $8,669   10,000,000  $1,000   3,950,000  $395   66,170,000  $6,617  $25,423,589  $(114,405) $196,500  $(54.535.258) $(29,012,893)  86,694,540  $8,669   10,000,000  $1,000   3,950,000  $395   66,170,000  $6,617  $25,423,589  $(114,405) $196,500  $(54,535,258) $(29,012,893)
Preferred shares issued for equity investments  7,000,000   700   -   -   -   -   -   -   1,749,300   -   -   -   1,750,000   7,500,000   750   -��  -   -   -   -   -   1,874,250   -   -   -   1,875,000 
Common stock issued for cash  -   -   -   -   -   -   850,000   85   212,415   -   (210,000)  -   2,500   -   -   -   -   -   -   870,000   87   217,413   -   (215,000)  -   2,500 
Preferred stock issued for cash  -   -   -   -   170,000   17   -   -   42,483   -   (2,500)  -   40,000   -   -   -   -   170,000   17   -   -   42,483   -   (2,500)  -   40,000 
Common stock issued for professional services  -   -   -   -   -   -   131,654   13   41,987   -   2,000   -   44,000   -   -   -   -   -   -   246,384   25   72,975   -   2,000   -   75,000 
Common share subscriptions received in advance  -   -   -   -   -   -   -   -   -   -   40,000   -   40,000   -   -   -   -   -   -   -   -   -   -   40,000   -   40,000 
Warrants for common stock issued  -   -   -   -   -   -   -   -   (258,132)  -   -   -   (258,132)  -   -   -   -   -   -   -   -   (258,132)  -   -   -   (258,132)
Reclassification of derivative  -   -   -   -   -   -   -   -   1,187,241   -   -   -   1,187,241   -   -   -   -   -   -   -   -   1,187,242   -   -   -   1,187,242 
Stock warrants/options exercised  -   -   -   -   -   -   8,000,000   800   -   -   -   -   800 
Conversions of preferred stock  (51,315,790)  (5,131)  -   -   -   -   51,315,790   5,131   -   -   -   -   - 
Conversion of promissory note  -   -   -   -   -   -   1,200,000   120   5,880   -   -   -   6,000 
Repurchase and retirement of common stock, at cost  -   -   -   -   -   -   (30,000,000)  (3,000)  (297,000)  -   -   -   (300,000)
Stock-based compensation expense                                  3,286,831               3,286,831 
Stock options/warrants exercised  -   -   -   -   -   -   21,470,620   2,147   -   -   -   -   2,147 
Net earnings  -   -   -   -   -   -   -   -   -   -   -   30,059,995   30,059,995   -   -   -   -   -   -   -   -   -   -   -   27,442,271   27,442,271 
Balance – October 31, 2018  93,694,540  $9,369   10,000,000  $1,000   4,120,000  $412   75,151,654  $7,515  $28,398,883  $(114,405) $26,000  $(24,475,263) $3,853,511 
Balance – January 31, 2019  42,878,750  $4,288   10,000,000  $1,000   4,120,000  $412   111,272,794  $11,127  $31,555,531  $(114,405) $21,000  $(27,092,987) $4,385,966 

 

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

 

9
 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 –DESCRIPTION OF OPERATIONS AND BASIS OF PRESENTATION

 

Sharing Services Global Corporation (“Sharing Services” or “the Company”) is a diversifiedholding company, with Elepreneurs Holdings, LLC and Elevacity Holdings, beingLLC as its primarymain operating subsidiaries.The Company is an emerging growth company that primarily markets and distributes health and wellness products that are sold under the Elevate brand through an independent sales force of distributors, or Elepreneurs,“Elepreneurs,” using a marketing strategy which is a form of direct selling. The Company’s current product offerings include its Elevate health and wellness product line was launched in December 2017. The Company’s Elevate product line2017 and consists of Nutraceutical products that the Company refers to as “D.O.S.E.” (which stands for: Dopamine, Oxytocin, Serotonin and Endorphins).

 

The condensed consolidated interim financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted as permitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2019.

 

Recent Corporate Name Change

 

In January 2019, Sharing Services, Inc. changed its corporate name to Sharing Services Global Corporation to better reflect the Company’s strategic intent to grow its business globally. The corporate name change was approved by the Company’s stockholders and by its Board of Directors. In connection with the name change, the Company adopted the over-the-counter trading symbol SHRG.“SHRG.”

 

Going Concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and settle its liabilities in the ordinary course of its business for the foreseeable future. The Company is an emerging growth company and, prior to its fiscal quarter ended January 31, 2018, the Company had virtually no sales. However, the Company’s quarterly net sales have increased, andand/or gross margin has expanded,generally have increased each quarter since the December 2017 launch of its Elevate health and wellness product line. For the full fiscal year ended April 30, 2019, cash provided by operations was $6.0 million, on annual sales of $85.9 million. In addition,million while, for the sixnine months ended OctoberJanuary 31, 2019,2020, cash provided by operations was $12.1$7.7 million, on sales of $74.3 million, while operating earnings were $3.9$106.0 million. As of OctoberJanuary 31, 2019,2020, cash and cash equivalents were $12.8$8.2 million.

 

The Company believes it will be able to fund its working capital needs for the next 12 months with existing cash and cash equivalents, cash to be provided by operations, secured and unsecured debt, including through the issuance of convertible notes and short-term borrowings under financing arrangements, and capital transactions from time to time. Accordingly, the Company believes there is no longer reasonable doubt as to the Company’s ability to continue as a going concern in the foreseeable future.

 

NOTE 2 –SIGNIFICANT ACCOUNTING POLICIES

 

We adhere to the same accounting policies in the preparation of our condensed consolidated interim financial statements as we do in the preparation of our full year consolidated financial statements. As permitted under GAAP, interim accounting for certain expenses is based on full-year assumptions.

 

Reclassifications

Certain reclassifications have been made to the prior period data to conform with the current period’s presentation.

Comprehensive Income

For the fiscal periods included in this Quarterly Report, the only component of the Company’s comprehensive income (loss) is the Company’s net earnings (loss). Accordingly, the Company does not present a consolidated statement of comprehensive income.

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Use of Estimates and Assumptions

 

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

 

10

Comprehensive Income

For the fiscal periods included in this Quarterly Report, the only component of the Company’s comprehensive income is its net earnings. Accordingly, the Company does not present a consolidated statement of comprehensive income.

Revenue Recognition

 

As disclosed earlier, the Company adopted Accounting Standards Codification (“ASC”) Topic 606,Revenue from Contracts with Customers, using the cumulative effect transition method, effective May 1, 2018. The Company derives revenue only from the sale of its products and services and recognizes revenue net of amounts due to taxing authorities (such as local and state sales tax). Our customers place sales orders online and through our “back-office” operations, which creates a contract and establishes the transaction price. The Company recognizes revenue when (or as) it transfers control of the promised goods and services to the customer. With respect to products sold, our performance obligation is satisfied upon receipt of the products by the customer. With respect to subscription-based services, including Elepreneur membership fees, our performance obligation is satisfied over time (up to one year). The timing of our revenue recognition may differ from the time when we invoice and/or collect payment. The Company has elected to treat shipping and handling costs as an activity to fulfill its performance obligations, rather than a separate performance obligation. Deferred sales revenue associated with our performance obligation for customers’ right of return was $201,386 and $194,042 as of October 31, 2019 and April 30, 2019, respectively, and was reported in accrued and other current liabilities on our condensed consolidated balance sheets.

Deferred revenue associated with product invoiced but not received by customers at the balance sheet date was $3.3$1.2 million and $2.5 million as of January 31, 2020 and April 30, 2019, respectively. In addition, as of January 31, 2020 and April 30, 2019, deferred revenue associated with our performance obligationobligations for services offered on a subscription basis was $546,004$460,896 and $515,087, asand deferred revenue associated with our performance obligations for customers’ right of October 31, 2019return was $215,979 and April 30, 2019,$194,042, respectively. These amounts areDeferred revenue is expected to be recognized over one year and wereis reported in accrued and other current liabilities on our consolidated balance sheets.

 

No individual customer, or related group of customers, represents 10% or more of our consolidated net sales and over 95%sales. Over 94% of our consolidated net sales are from sales to our customers and/or independent distributors located in the United States. During the sixnine months ended OctoberJanuary 31, 2019,2020, approximately 50% of our consolidated net sales were to recurring customers, approximately 25% were to new customers, and approximately 25% of our consolidated net sales were to our independent distributors.

 

ForDuring the sixnine months ended OctoberJanuary 31, 2019,2020, approximately 98% of our consolidated net sales are from ourElevateproduct line (including approximately 25% from the sales of coffee and coffee-related products and approximately 52% from the sale of all other D.O.S.E. Nutraceutical products). ForDuring the sixnine months ended OctoberJanuary 31, 20192020 and 2018,2019, product purchases from a singleone supplier accounted for approximately 98% and 92%95%, respectively, of our total product purchases.

 

Sales Commission

 

The Company recognizes sales commission expense, when incurred, in accordance with GAAP. ForDuring the three months ended OctoberJanuary 31, 20192020 and 2018,2019, sales commission expense was $18.2$14.0 million and $7.9$12.7 million, respectively. ForDuring the sixnine months ended OctoberJanuary 31, 20192020 and 2018,2019, sales commission expense was $33.6$47.6 million and $13.6$26.3 million, respectively. Sales commission expense is included in selling and marketing expenses in our consolidated statements of operations.

As of January 31, 2020 and April 30, 2019, accrued sales commission payable was $8,491,081 and $7,402,659, respectively; including $1,290,599 and $1,365,705, respectively, payable with stock warrants.

 

Accounting Changes

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02,Leases, which requires lessees to report on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating leases under the prior guidance. UnderAs permitted, the Company adopted the new guidance, codified as ASCAccounting Standards Codification (“ASC”) Topic 842,Leases, the lease liability must be measured upon adoption of the new standard based on the present value of future lease payments, subject to certain conditions. The right-of-use asset must be measured upon adoption of the new standard based on the amount of the liability, plus certain initial direct costs. As permitted, the Company adopted ASC Topic 842 effective May 1, 2019 using the optional cumulative-effect transition method, and adoption resulted in an initial lease liability in the aggregate amount of $1.3approximately $1.4 million and right-of-use assets in the same aggregate amount. The Company’s right-of-use assets relate to leases involving office space, automobiles and office equipment, and are amortized over periods ranging from one to three years. The adoption of ASC Topic 842 did not otherwise have a material impact on the Company’s consolidated financial statements.

11
 

 

Recently Issued Accounting Standards

 

In August 2018, the FASB issued ASU 2018-13,Fair Value Measurement (Topic 820) which modifies the disclosure requirements on fair value measurements under ASC Topic No. 820,Fair Value Measurement, as amended (“ASC 820”). For public companies, ASU 2018-13 removes (a) the prior requirement to disclose the amount and reason for transfers between Level 1 and Level 2 of the fair value hierarchy contained in ASC Topic 820, (b) the policy for timing of transfers between levels, and (c) the valuation processes used for level 3 fair value measurements. For public companies, ASU 2018-13 also adds, among other things, a requirement to disclose the range and weighted average of significant unobservable inputs used in Level 3 fair value measurements. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption was permitted upon issuance of ASU 2018-13. The Company has not adopted ASU 2018-13 effective February 1, 2020 and based on its preliminary assessment, doessuch adoption did not believe the impact of adoption would behave a material effect on its consolidated financial statements.

 

NOTE 3 – 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, notes payable and derivative liabilities. The carrying amounts of cash equivalents, if any, trade accounts receivable, notes receivable, and accounts payable approximate their respective fair values due to the short-term nature of these financial instruments.

 

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

 

 October 31, 2019  January 31, 2020 
 Total  Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3 
Assets                                
Accounts receivable, related party $3,456,751  $-  $-  $3,456,751  $3,456,751  $-  $-  $3,456,751 
Investments in unconsolidated entities  20,000   -   -   20,000   20,000   -   -   20,000 
Total assets $3,476,751  $-  $-  $3,476,751  $3,476,751  $-  $-  $3,476,751 
Liabilities                                
Convertible notes payable $120,605  $-  $-  $120,605  $110,736  $-  $-  $110,736 
Notes payable  115,385   -   -   115,385   -   -   -   - 
Total liabilities $235,990  $-  $-  $235,990  $110,736  $-  $-  $110,736 

 

  April 30, 2019 
  Total  Level 1  Level 2  Level 3 
Assets                
Accounts receivable, related party $3,446,114  $-  $-  $3,446,114 
Investments in unconsolidated entities  207,500   -   -   207,500 
Total assets $3,653,614  $-  $-  $3,653,614 
Liabilities                
Convertible notes payable $870,567  $-  $-  $870,567 
Notes payable  2,123,208   -   -   2,123,208 
Total liabilities $2,993,775  $-  $-  $2,993,775 

 

12

NOTE 4 – EARNINGS (LOSS) PER SHARE

 

We calculate basic earnings (loss) per share by dividing net earnings (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is calculated similarly but reflects the potential impact of outstanding convertible preferred stock, stock warrants and other commitments to issue common stock, including shares issuable upon the conversion of convertible notes, except where the impact would be anti-dilutive.

The following table sets forth the computations of basic and diluted lossearnings (loss) per share:

 

  Three Months Ended October 31,  Six Months Ended October 31, 
  2019  2018  2019  2018 
Net earnings (loss), as reported $(1,231,222) $30,151,246  $(2,085,728) $30,059,995 
After tax interest adjustment  -   98,462   -   158,189 
Net earnings (loss), if-converted basis $(1,231,222) $30,249,708  $(2,085,728) $30,218,184 
Weighted average basic shares  132,500,548   67,146,971   128,185,221   66,854,138 
Dilutive securities and instruments:                
Convertible preferred stock  -   106,997,040   -   105,641,442 
Convertible notes  -   210,959,331   -   112,199,041 
Stock options and warrants  -   7,402,137   -   7,218,387 
Weighted average diluted shares  132,500,548   392,505,479   128,185,221   291,913,008 
Earnings per share:                
Basic $(0.01) $0.45  $(0.02) $0.45 
Diluted $(0.01) $0.08  $(0.02) $0.10 

  Three Months Ended January 31,  Nine Months Ended January 31, 
  2020  2019  2020  2019 
Net earnings (loss), as reported $2,379,982  $(2,617,723) $294,255  $27,442,271 
After tax interest adjustment  1,185   -   35,716   110,639 
Net earnings (loss), if-converted basis $2,381,167  $(2,617,723) $329,971  $27,552,910 
Weighted average basic shares  133,272,386   77,603,622   125,535,104   70,437,299 
Dilutive securities and instruments:                
Convertible preferred stock  45,957,554   -   46,176,467   101,879,204 
Convertible notes  10,406,100   -   54,606,397   54,825,175 
Stock options and warrants  21,760,510   -   20,253,606   5,649,529 
Weighted average diluted shares  211,396,550   77,603,622   246,571,574   232,791,207 
Earnings (loss) per share:                
Basic $0.02  $(0.03) $0.00  $0.39 
Diluted $0.01  $(0.03) $0.00  $0.12 

 

The following potentially dilutive securities and instruments were outstanding as of Octoberduring the three months ended January 31, 2019 but excluded from the table above because their impact would be anti-dilutive:

 

Convertible preferred stock  46,285,92456,998,750 
Convertible notes  69,259,75689,186,267 
Stock options and warrants  21,585,1672,513,333 
Total incremental shares  137,130,847148,698,350 

 

NOTE 5 – NOTES RECEIVABLE

 

In March and April 2018, the Company entered into certain investment agreements with a third party pursuant to which the Company loaned an aggregate of $275,000 to the third party. The related promissory notes accrued interest at the rate of 12% per annum. In June 2019, the Company and the third party entered into a loan exchange agreement pursuant to which the Company received a promissory note for $309,309 in settlement of all amounts owed to the Company under the March and April 2018 loans, including loan principal of $275,000 and accrued interest of $34,309. Loans under the June 2019 promissory note bear interest at the rate of 8% per annum. In October 2019, after exhausting all efforts to collect the amounts due pursuant to the June 2019 promissory note, the Company recognized an impairment loss of $317,105 in connection therewith. For the sixnine months ended OctoberJanuary 31, 20192020 and 2018,2019, interest income earned in connection with our promissory notes, excluding promissory notes from a related party, was $15,357$15,620 and $16,636,$24,953, respectively.

In the fiscal year 2019, the Company received a promissory note for $106,404 from a prior merchant processor in connection with amounts owed to the Company. The Company and the issuer have been in negotiations aimed at settling this balance. On March 2, 2020, the Company and the issuer of the note reached an agreement pursuant to which the Company expect to collect $60,000 in full payment of the balance owed to it. In January 2020, the Company recognized an impairment loss of $46,404 in connection therewith.

13

 

NOTE 6 – OTHER CURRENT ASSETS

 

Other current assets consist of the following:

 

  October 31, 2019  April 30, 2019 
Prepaid expenses $145,124  $270,625 
Right to recover asset  58,452   65,257 
Interest receivable  138,546   36,678 
Other  5,007   750 
  $347,129  $373,310 

13
  January 31, 2020  April 30, 2019 
Prepaid expenses $219,094  $270,625 
Right to recover asset  63,349   65,257 
Interest receivable, including $206,066 due from related parties at January 31  206,066   36,678 
Other  1,207   750 
  $489,716  $373,310 

 

NOTE 7 – PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

 October 31, 2019  April 30, 2019  January 31, 2020 April 30, 2019 
Furniture and fixtures $224,239  $193,737  $224,239  $193,737 
Computer equipment and software  119,989   91,223   148,537   91,223 
Leasehold improvements  97,890   82,981   103,340   82,981 
Office equipment  31,652   30,601   31,652   30,601 
Total property and equipment  473,770   398,542   507,768   398,542 
Accumulated depreciation and amortization  (138,259)  (91,018)  (178,523)  (91,018)
Property and equipment, net $335,511  $307,524  $329,245  $307,524 

 

Depreciation and amortization expense was $16,961$40,264 and $23,963$22,850 for the three months ended OctoberJanuary 31, 20192020 and 20182019 and, for the sixnine months ended OctoberJanuary 31, 2020 and 2019, $87,506 and 2018, $47,242 and $31,910,$54,760, respectively.

 

NOTE 8 – INVESTMENTS IN UNCONSOLIDATED ENTITIES

The Company made investments in certain unconsolidated entities that own and market products that fit the Company’s direct selling model and could add to its products portfolio. However, the Company did not, directly or indirectly, hold a “controlling financial interest,” as defined in GAAP, in any of these investees. Thus, the Company did not report these investees on a consolidated basis. In addition, the Company did not exert influence over the operations or policies of the investees. For example, the Company’s officers, directors, and management are not involved in the operations or policies of the investees. Accordingly, the Company accounted for these investments on the cost basis.

 

In the fiscal year ended April 30, 2019, the Company recognized an impairment loss in the aggregate amount of $4.4 million in connection with its investments in unconsolidated entities as a result of a less than temporary decline in the value of the Company’s investment. In addition, in the sixnine months ended OctoberJanuary 31, 2019,2020, the Company recognized an impairment loss in the amount of $187,500 in connection with its investments in an unconsolidated entity as a result of a less than temporary decline in the value of the Company’s investment. The information contained in Note 8 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2019 is incorporated herein by reference. See Note 16 below for contingencies and other matters associated with the Company’s prior investments.

The Company periodically assesses the value of its investments in unconsolidated entities by considering several factors, including the prospect of the investee achieving commercial viability, the ability of the investee to generate sustainable earnings and cash flows, and the probability of recovery of the Company’s investment.entities.

 

NOTE 9 - NOTES PAYABLE

 

InOn December 11, 2018, the six months ended October 31,Company entered into a Loan Agreement and Promissory Note (the “loan agreement”) with Global Payroll Gateway pursuant to which the Company borrowed the principal amount of $1,000,000. Borrowings under the loan agreement were payable in 52 weekly installments. Consistent with the terms of the loan agreement, on December 11, 2019, the Company repaid an aggregate of $2.4 million of its short-termpaid in full all principal and interest outstanding thereunder.

In the nine months ended January 31, 2020, the Company paid in full all borrowings under financing arrangements with third-party lenders.lenders, including borrowings under the loan agreement discussed above. At October 31, 2019 and April 30, 2019, notes payable, consisting of short-term borrowings under financing arrangements, in the aggregate, were $115,385 and $2,123,208, respectively. These balances are net of unamortized debt discount of $11,538 and $379,777, respectively.$379,777. Borrowings under thesethe Company’s financing arrangements arewere secured by a lien on the Company’s accounts receivable, inventory and property and equipment.

 

14
 

 

NOTE 10 - ACCRUED AND OTHER CURRENT LIABILITIES

 

Accrued and other current liabilities consist of the following:

 

 October 31, 2019  April 30, 2019  January 31, 2020  April 30, 2019 
State and local taxes payable $2,007,997  $1,913,638  $2,003,225  $1,913,638 
Payroll  859,621   37,807 
Payroll and payroll related  1,123,128   37,807 
Lease liability, current portion  496,013   -   496,241   - 
Accrued shipping and freight  375,443   226,695   165,716   226,695 
Accrued interest payable  41,212   139,746   13,940   139,746 
Other operational accruals  502,059   290,877   411,540   290,887 
 $4,282,345  $2,608,773  $4,213,790  $2,608,773 

 

Lease liability, current portion, represent obligations under leases that are payable within one year for office space, automobiles and office equipment. See Note 2 of the Condensed Notes to the Consolidated Financial Statements above for information about the Company’s adoption of ASC Topic 842,Leases.

 

NOTE 11 - CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consists of the following:

 

   Conversion Price        Conversion Price    
Issuance Date Maturity Date (per share)  October 31, 2019  April 30, 2019  Maturity Date  (per share)  January 31, 2020  April 30, 2019 
October 2017 October 2022 $0.15  $50,000  $50,000   October 2022  $0.15  $50,000  $50,000 
November 2017 On Demand $0.0025   -   5,000   On Demand  $0.0025   -   5,000 
January 2018 On Demand $0.0025   -   250,000   On Demand  $0.0025   -   250,000 
February 2018 On Demand $0.0025   -   250,000   On Demand  $0.0025   -   250,000 
March 2018 On Demand $0.01   -   250,000   On Demand  $0.01   -   250,000 
April 2018 On Demand $0.01   100,000   100,000   April 2021  $0.01   100,000   100,000 
Total convertible notes payableTotal convertible notes payable      150,000   905,000 Total convertible notes payable       150,000   905,000 
Less: debt discount and deferred financing fees      (29,395)  (34,433)
Less: unamortized debt discount and deferred financing feesLess: unamortized debt discount and deferred financing fees       (39,264)  (34,433)
      120,605   870,567           110,736   870,567 
Less: current portion of convertible notes payableLess: current portion of convertible notes payable      100,000   855,000 Less: current portion of convertible notes payable       -   855,000 
Long-term convertible notes payableLong-term convertible notes payable     $20,605  $15,567 Long-term convertible notes payable      $110,736  $15,567 

 

All theThe Company’s convertible notes are convertible, at the option of the holder, into shares of the Company’s common stock. Borrowings on all the Company’s convertible notesnote issued in October 2017 bear interest at the annual rate of 12%.

 

On December 6, 2019, the Company and the holder of the Company’s convertible note dated April 13, 2018 (the “April 2018 Note”) entered into an addendum to the underlying promissory note. Pursuant to the addendum, the parties extended the maturity date of the April 2018 Note to April 13, 2021. In addition, after giving effect to the addendum, the April 2018 Note is non-interest bearing. All other terms of the April 2018 Note remain unchanged. The Company recorded the transaction as an exchange of debt instruments with substantially different terms. In connection therewith, the Company recognized a gain on extinguishment of debt of $13,672. The new debt was recorded net of an initial unamortized debt discount of $13,672, which will be amortized over the term of the April 2018 Note, as amended.

During the sixnine months ended OctoberJanuary 31, 2019,2020, the Company settled in full all its obligations under convertible notes with an aggregate principal balanceamount of $755,000, excluding accrued but unpaid interest of $136,315. During the nine months endedJanuary 31, 2020, the holder of one of the Company’s convertible promissory notes converted $28,000 in accrued but unpaid interest into 2,800,000 shares of the Company’s class A common stock pursuant to the terms of the promissory note.

 

ForDuring the three months ended OctoberJanuary 31, 20192020 and 2018,2019, interest expense in connection with the Company’s convertible notes was $16,802$1,500 and $124,635,$27,767, respectively, excluding amortization of debt discount of $2,519$4,103 and $509,711,$221,599, respectively. ForDuring the sixnine months ended OctoberJanuary 31, 20192020 and 2018,2019, interest expense in connection with the Company’s convertible notes was $43,711$45,211 and $200,240,$140,049, respectively, excluding amortization of debt discount of $5,040$9,141 and $514,011,$1,066,611, respectively.

15

 

NOTE 12 - DERIVATIVE LIABILITIES

 

The Company analyzed the conversion option for derivative accounting consideration under ASC 815 and determined that the Company’s convertible notes and stock warrants outstanding at April 30, 2018 should be classified as a liability, under the ASC 815 guidance, since the conversion options becomebecame effective at issuance and there iswas no explicit limit to the number of shares issuable upon conversion due to contingencies affecting the conversion rate.

 

The Company classifies its derivative liabilities under Level 3 of the three-level hierarchy for measuring fair value (see Note 3 above) and uses a multi-nominal lattice model to calculate the fair value of these liabilities. The multi-nominal lattice model requires six data inputs including: (1) the exercise or conversion price, (2) the expected term (in years), (3) the expected volatility for the Company’s common stock, (4) the current stock price, (5) the risk-free interest rate, and (6) the expected dividend yield. Changes to these inputs could result in a significantly higher or lower fair value measurement.

 

During the three months ended October 31, 2018, the Company repaid the convertible notes with a variable conversion rate, a conversion rate tied to the market price of the Company’s common stock. The remaining convertible notes and warrants outstanding havehad a fixed conversion rate and, accordingly, the number of shares issuable upon conversion iswas determinable with certainty. As a result, the Company recognized a decrease in its derivative liability resulting in the beneficial conversion feature associated with the remaining convertible notes and warrants of $1,187,242 (recognized as an increase to additional paid-in capital) and a gain on fair value of derivatives liabilities of $20,015,840. The Company has no similar derivative liabilities at Octoberoutstanding during the nine months ended January 31, 2019.2020.

 

The following weighted-average assumptions were used when valuing our derivative liabilities:

 

  

SixNine Months Ended

OctoberJanuary 31, 20182019

 
Expected term (in years)  1.0-5.0 
Expected average volatility  107% - 237%
Expected dividend yield  - 
Risk-free interest rate  1.65% - 2.96%

 

The following table summarizes the activity forchanges in the Company’s derivative liabilities included in our consolidated balance sheet forduring the sixnine months ended OctoberJanuary 31, 2018:2019:

 

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance – April 30, 2018 $30,488,655 
Addition of new derivatives recognized as debt discounts  325,000 
Other addition of new derivatives  679,032 
Reclassification of derivatives due to tainted instruments  258,132 
Change in fair value of the derivative  (10,547,737)
Reclassification of derivative to additional paid-in capital  (1,187,242)
Change in derivative liabilities recognized as gain on derivative  (20,015,840)
Balance - October 31, 2018 $- 

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance – April 30, 2018 $30,488,655 
Addition of new derivatives recognized as debt discounts  325,000 
Other addition of new derivatives  679,032 
Reclassification of derivatives due to tainted instruments  258,132 
Change in fair value of the derivative  (10,547,737)
Reclassification of derivative to additional paid-in capital  (1,187,242)
Change in derivative liabilities recognized as gain on derivative  (20,015,840)
Balance - January 31, 2019 $- 

The following table summarizes the (loss) gain on derivative liability included in our consolidated statement of operations:

 

  Six months ended October 31, 2018 
Day-one loss due to derivative liabilities on convertible notes payable and warrants $(678,941)
Change in derivative liabilities  20,015,840 
Gain from marked-to-market adjustments  10,547,737 
Net gain on change in fair value of derivative liabilities $29,884,636 

16
  Nine Months Ended January 31, 2019 
Day-one loss due to derivative liabilities on convertible notes payable and warrants $(679,032)
Change in derivative liabilities  20,015,840 
Gain from marked-to-market adjustments  10,547,737 
Net gain on change in fair value of derivative liabilities $29,884,545 

 

NOTE 13 – INCOME TAXES

 

The Company is an emerging growth company and, prior to its fiscal quarter ended October 31, 2018, had not generated earnings from its operations or pre-tax earnings. During its fiscal year ended April 30, 2019 and 2018, the Company’s consolidated operating loss was $1.1 million and $6.0 million, respectively, and, duringrespectively. During the sixnine months ended OctoberJanuary 31, 2019,2020, the Company’s consolidated operating earnings were $3.9$6.5 million. The Company believes that it is probable it will utilize its available net operating losses entirely in the foreseeable future. During the sixnine months ended OctoberJanuary 31, 2019,2020, the Company recognized a provision for income taxes of $1.4$1.6 million.

 

NOTE 14 - RELATED PARTY TRANSACTIONS

 

Alchemist Holdings, LLC

 

In connection with the Company’s acquisition of Total Travel Media, Inc. in May 2017, the Company issued 7,500,000 shares of its Series B preferred stock and 7,500,000 shares of its common stock (Class B) to Alchemist Holdings, LLC (“Alchemist”), an entity which was then controlled byunder the operational control of the then Chairman of our Board of Directors. In connection with the Company’s acquisition of Four Oceans Holdings, Inc. in September 2017, the Company issued 50,000,000 shares of its Series A preferred stock to Alchemist. Such shares of Series A preferred stock have since been converted to shares of the Company’s Class A common stock. The information contained in Note 1 of Notes to the Consolidated Financial Statements located in ITEM 8 – Financial Statements and Supplementary Data in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019 is incorporated herein by reference.

 

Bear Bull Market Dividends, Inc.

 

In connection with the Company’s acquisition of Total Travel Media, Inc., the Company issued 2,500,000 shares of its Series B preferred stock and 2,500,000 shares of its Class B common stock (Class B) to Bear Bull Market Dividends, Inc. In connection with the Company’s acquisition of Four Oceans Holdings, Inc. in September 2017,, the Company issued 20,000,000 shares of its Series A preferred stock to Bear Bull Market Dividends, Inc.

 

See Note 16 below for more information about our related parties.

 

NOTE 15 - STOCKHOLDERS’ EQUITY (DEFICIT)

 

Preferred Stock

 

Series A Convertible Preferred Stock

During the sixnine months ended OctoberJanuary 31, 2019,2020, holders of 10,400,000 shares of the Company’sSeries Aconvertiblepreferred stock converted their holdings into 10,400,000 shares of the Company’s common stock.

 

As of OctoberJanuary 31, 2019,2020, 32,478,750 shares of our Series Aconvertiblepreferred stockremainedissued and outstanding.

 

Series B Convertible Preferred Stock

As of OctoberJanuary 31, 2019,2020, 10,000,000 shares of our Series Bconvertiblepreferred stock remainedissued and outstanding.

Series C Convertible Preferred Stock

 

During the sixnine months ended OctoberJanuary 31, 2019,2020, holders of 50,000 shares of the Company’sSeries Cconvertiblepreferred stock converted their holdings into 50,000 shares of the Company’s common stock. In addition, the Company issued 20,000 shares (in exchange for cash in the aggregate amount of $5,000) in connection with prior stock. subscription agreements.

 

As of OctoberJanuary 31, 2019, 3,470,0002020, 3,490,000 shares of our Series Cconvertiblepreferred stockremainedissued and outstanding.

 

Common Stock

 

As described above, during the sixnine months endedOctoberJanuary 31, 2019,2020, holders of 10,400,000 shares of the Company’sSeries Aconvertiblepreferred stockand holders of 50,000 shares of the Company’sSeries Cconvertiblepreferred stock converted their holdings into a respectively equal number of shares of the Company’s common stock.

 

During the sixnine months endedOctoberJanuary 31, 2019,2020, the Company issued 10,000,000 shares of its class A common stock to a director in connection with his exercise (at an exercise price of $0.0001 per share) of stock warrants granted under his employment agreement. In addition, the Company issued 215,325 shares of its class A common stock in exchange for professional or consulting services valued at $36,000$57,000, and 30,000 shares of its class A common stock, in exchange for $7,500 in cash, in connection with stock subscription agreements.

During the sixnine months endedOctoberJanuary 31, 2019,2020, the holder of one of the Company’s convertible promissory notes converted $28,000 in accrued but unpaid interest into 2,800,000 shares of the Company’s class A common stock pursuant to the terms of the promissory note. In addition, during the nine months endedJanuary 31, 2020, the Company repurchased from a third-party, in exchange for $500 in cash, and retired 1,500,000 shares of its class A common stock and retired the shares.stock.

 

As of OctoberJanuary 31, 202031, 2019, 123,272,386, 126,072,386 shares of our class A common stock and 10,000,000 shares of our Class B common stock remained issued and outstanding.

 

Stock Warrants

 

The following table summarizes the activity relating to the Company’s warrants during the sixnine months ended OctoberJanuary 31, 2019:2020:

 

 Number of Warrants Weighted Average Exercise Price(1) Weighted Average Remaining Term(1)  Number of
Warrants
 Weighted Average Exercise Price Weighted Average Remaining Term 
Outstanding at April 30, 2019  4,255,133  $0.24   3.1   4,255,133  $0.24   2.4 
Granted  27,644,000  $0.0001   9.6   27,644,000  $0.0001   9.2 
Exercised  10,000,000  $0.0001   -   10,000,000  $0.0001   - 
Expired  -   -   -   -   -   - 
Outstanding at October 31, 2019  21,899,133  $0.05   8.2 
Outstanding at January 31, 2020  21,899,133  $0.05   7.9 

 

The following table summarizes certain information relating to outstanding and exercisable warrants:

 

Warrants Outstanding at October 31, 2019 
Warrants Outstanding at January 31, 2020Warrants Outstanding at January 31, 2020 
Warrants OutstandingWarrants Outstanding Warrants Exercisable Warrants Outstanding Warrants Exercisable 
 Weighted
Average Remaining
 Weighted
Average
   Weighted
Average
   Weighted
Average Remaining
 Weighted
Average
   Weighted
Average
 
Number of
Shares
Number of
Shares
 Contractual
life (in years)
 Exercise
Price
 Number of
Shares
 Exercise
Price
 Number of
Shares
 Contractual
life (in years)
 Exercise
Price
 Number of
Shares
 Exercise
Price
 
                           
17,500,000   9.8  $0.0001   17,500,000  $0.0001 17,500,000   9.3  $0.0001   17,500,000  $0.0001 
2,180,000   4.0  $0.09   2,180,000  $0.09 2,180,000   3.3  $0.09   2,180,000  $0.09 
1,785,800   1.6  $0.25   1,785,800  $0.25 1,785,800   1.1  $0.25   1,785,800  $0.25 
100,000   2.7  $3.00   100,000  $3.00 100,000   2.2  $3.00   100,000  $3.00 
333,333   3.2  $0.15   333,333  $0.15 333,333   2.7  $0.15   333,333  $0.15 

 

During the sixnine months ended OctoberJanuary 31, 2019,2020, the Company issued warrants to purchase up to 144,000 shares of the Company’s common stock to its independent sales force (with an aggregate fair value of $95,267). In addition, the Company issued warrants to purchase, in the aggregate, up to 27,500,000 shares of the its common stock to two new directors and an employee, with an aggregate fair value of $5,500,000. The exercise price of these stock warrants wasis $0.0001 per share.

NOTE 16 - COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings

 

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

 

Acquisition-Related Contingencies

 

In October 2017, the Company entered into aShare Exchange Agreementpursuant to which it acquired a 25% equity interest in 561 LLC. Pursuant to the terms oftheShare Exchange Agreement, in May 2018, the Company increased its cumulative equity interest in 561 LLC to 40%in exchange for 2,500,000 shares of its Series A Preferred Stock. Under the terms oftheShare Exchange Agreement, the sellers would be entitled to an additional 2,500,000 shares of our Series A Preferred Stock if/when both of the following conditions have been met: (a)one year has passed from the Closing Dateand (b) the closing bid price of the Company’s common stock equals or exceeds $5.00 per share, as reported by OTC Markets. In accordance with GAAP, the Company has not recorded a liability in connection with this contingency.

In October 2017, the Company entered into aShare Exchange Agreementpursuant to which it acquired a 25% equity interest in America Approved Commercial LLC (“AAC”).Pursuant to the terms oftheShare Exchange Agreement, in May 2018, the Company increased its cumulative equity interest in AAC to 40%in exchange for 2,500,000 shares of its Series A Preferred Stock. Under the terms oftheShare Exchange Agreement, the sellers would be entitled to an additional 2,500,000 shares of the Company’s Series A Preferred Stock in/when both of the following conditions have been met: (a)one year has passed from the Closing Dateand (b) the closing bid price of the Company’s common stock equals or exceeds $5.00 per share, as reported by OTC Markets. In accordance with GAAP, the Company has not recorded a liability in connection with this contingency.

 

As of September 16, 2019, the Company and 212 Technologies, LLC (“212 Technologies”) entered into a Release and Settlement Agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the parties: (i) rescinded a certain “Stakeholder & Investment Agreement” dated May 21, 2017 (resulting in the return of 5,628,750 shares of the Company’s Series A Preferred Stock by 212 Technologies and the return of a 24% ownership stake in 212 Technologies by the Company) and (ii) terminated a certain “Software License Agreement” dated June 12, 2018 (the “SLA”) by and between 212 Technologies and Elepreneurs, LLC, a wholly owned subsidiary of the Company (“Elepreneurs”). In connection with the Settlement Agreement, Elepreneurs agreed to pay 212 Technologies the amount of $425,000 and to dismiss with prejudice a lawsuit it had previously filed concerning the functionality of the mobile application produced by 212 Technologies under the SLA, and the parties reached mutually accommodating terms and resolved all issues between their respective companies. As of the date hereof, the shares returned by 212 Technologies remain outstanding and are held byunder the terms of a custodian agreement for the benefit of the Company.

 

Other Matters

 

In January 2019, the Company became aware of an unliquidated amount of potential liability arising from a series of cash advance loan transactions (“(the “Loan Transactions”) entered into by eight different lending sources and a Related Party entity (“debtor(the “debtor entity”) owned and/or controlled by a former Company officer. Without the knowledge of the Company and in contravention of the express provisions of both the Company’s Bylaws and the controlling Nevada Revised Statutes, this former officer also purported to obligate the Company (and two of the Company’s affiliates) to repay the amounts owed by the debtor entities under the Loan Transactions. At this time, the Company has resolved all of the debt associated with the Loan Transactions at a substantial discount from the amounts alleged by the holders of such debt. Additionally, the Company has entered into a comprehensive agreement, secured by substantial assets, with the former officer and the entity owned and/or controlled by the former officer. Pursuant to such agreement, the former officer and the entity owned and controlled by such former officer are obligated jointly and severally to repay the Company all sums expended by the Company in the resolution of the Loan Transactions. The amount expended by the Company, in connection with such resolution, is the sum of $3.4 million. At April 30, 2019, theThe Company has recorded an accounts receivable of $3.4 million from the former officer and the entity owned and/or controlled by the former officer. This amount is reported in accounts receivable, related party in our consolidated balance sheet.

In June 2019, the Company became aware of a potential liability arising out of certain previous transactions involving the formation and capitalization of two legal entities affiliated with a Company consultant who was, at the time, considered the Company spokesperson. Without the knowledge of the Company and in contravention of the express provisions of both the Company’s Bylaws and the controlling Nevada Revised Statutes, this Company consultant purportedly solicited investment funds from various persons, who at the time, were independent contractors of the Company. While this matter is still currently under investigation, the Company has reason to believe that this Company consultant, possibly acting in concert with others, sought to leverage the assets and resources of the Company in furtherance of these ventures, to their personal pecuniary benefit. Upon learning of these allegations from various of these investors, the Company launched an immediate internal investigation into these transactions. In addition, the Company secured the services of a Dallas-based law firm with experience in financial impropriety and forensic investigations to assist in that process. The Company believes that it is probable that these actions have resulted in a material loss to the investing parties and is evaluating the potential exposure of these events to the Company. The Company is continuing to finalize its evaluation and to pursue settlements with the impacted investing parties.

 

On July 26, 2019, the Company and certain of its subsidiaries entered into a Settlement Agreement (the “Agreement”) with Company co-founder and former consultant Robert Oblon. Pursuant to the Agreement and in compromise of a dispute concerning a prior contractual obligation and various competing claims, the Company agreed to pay Mr. Oblon the aggregate amount of $2.2 million, payable in 96 equal semi-monthly installments, and stock warrants to purchase up to 7.0 million restricted shares of the Company’s common stock, subject to limiting conditions. On August 30, 2019, the Company ceased making the installment payments and filed a lawsuit against Mr. Oblon claiming, among other things, Mr. Oblon’s breach of contract related to this Agreement, as further discussed below. During the three and sixnine months ended OctoberJanuary 31, 2019,2020, the Company made payments under the Agreement of $120,000$0.0 and $235,000, respectively. At October 31, 2019, theThe Company has recognized an estimated settlement liability of $2.9 million in connection with the Agreement. Please see Note 17 below.

 

On March 28, 2019, Elepreneur, LLC, a wholly owned subsidiary of the Company, and Jordan Brock, a co-founder and former officer of the Company, entered into a Founder Consulting Agreement pursuant to which Mr. Brock agreed to provide certain business consulting services to the Company. Under the terms of the Founder Consulting Agreement, the Company agreed to pay Mr. Brock a consultancy fee at the rate of $15,000 per month. Effective as of July 15, 2019, the Company and Mr. Brock amended the Founder Consulting Agreement which resulted in the increase of the consultancy fee to $37,000 per month in exchange for Mr. Brock’s willingness to forgo significant previously negotiated income-earning opportunities with the Company. During the three and sixnine months ended OctoberJanuary 31, 2019,2020, the Company made payments under the Founder Consulting Agreement of $45,000$111,000 and $137,500,$248,500, respectively.

 

In July 2019, Pruvit Ventures, Inc. filed a lawsuit against Elevacity U.S., LLC, a wholly owned subsidiary of the Company, alleging breach of contract by Elevacity. Elevacity has denied the Plaintiff’s claim. Discovery was propounded on the Plaintiff specifically related to the alleged act of wrong-doing, responses were received by the Company on December 6, 2019 and the Company is currently evaluating the responses.

 

In August 2019, Entrepreneur Media, Inc. (“EMI”) notified the Company that EMI believes that the Company’s pending trademark application for “Elepreneurs” would confuse consumers due to the purported similarity to EMI’s existing trademark for the word “Entrepreneur.” The Company believes that this claim is without merit and intends to vigorously defend its trademark application. EMI has reached out to the Company and the parties are now engaged in dialogue intended to achieve a possible amicable resolution.

In August 2019, the Company filed a lawsuit in the District Court of Collin County, Texas against Kenyatto M. Jones, Bear Bull Market Dividends, Inc. and Research and Referral, BZ for breach of contract, statutory fraud in a stock transaction, and violations of the Texas Securities Act. The three defendants purport to be beneficial owners of shares of the Company’s equity securities, which purported ownership is the subject of the referenced lawsuit. The relief sought in the lawsuit includes both recovery of damages and rescission of the underlying shares of the Company’s equity securities. Defendants Bear Bull and Jones filed a Motion to Transfer the complaint in September 2019. A hearing on the Defendants’ Motion to Transfer has been set for April 2, 2020.

 

On August 30, 2019, the Company and certain of its affiliated entities filed a lawsuit in the District Court of Collin County, Texas against Company founderco-founder and former consultant, Robert Oblon. The lawsuit claims breach of contract related to the Settlement Agreement dated July 26, 2019 discussed above, tortious interference with business relationships, and misappropriation of trade secrets, and sought injunctive relief. The Company and such affiliated entities filed an amended petition in September 2019 and were awarded temporary injunctive relief protecting their intellectual property.

In September 2019, the The Company and such affiliated entities filed a former consultantsecond amended petition in December 2019 and were awarded injunctive relief requiring the turnover of certain intellectual and other property to the Company agreed to settle a legal dispute between the Company and the consultant. As of the date herein the parties are in the process of formalizing the settlement. The Company has accrued all costs and expenses associated with the settlement in the three months ended July 31, 2019.Company. Please see Note 17 below.

On October 1, 2019, the Company filed a complaint in the District Court of Clark County, Nevada entitled Sharing Services Global Corporation v. Bear Bull Market Dividends, Inc., Alchemist Holdings, LLC, Kenyatto M. Jones, et al.,Case No. A-19-802861-B. The lawsuit asserts that athe Certificate of Designation for its Series B Preferred Stock filed on or about April 24, 2017 (the “Defective Certificate”) was in contravention of both the Company’s Articles of Incorporation and Nevada law. Additionally, the lawsuit alleges that the Defective Certificate was improperly approved through the self-dealing actions of certain former Company executives, working in collusion with outside shareholders. The lawsuit seeks relief in the form of an injunction enjoining the defendants from attempting to enforce the provisions of the Defective Certificate and a declaratory judgment that will invalidate the improper portions of the Defective Certificate. The lawsuit also requests declaratory judgment relief regarding the terms of the Amended and Restated Certificate of Designation filed by the Company on or about September 26, 2019 (the “Amended Certificate”) which seeks to correct the improper provisions of the Defective Certificate and to properly realign the rights of the shareholders which were improperly diminished by the terms of the Defective Certificate. The District Court of Clark County issued a default judgment against Defendant Bear Bull Market Dividends, Inc. on November 14, 2019 and against Defendant Kenyatto MM. Jones on November 15, 2019. The Company is in negotiations with Defendant Alchemist Holdings, LLC and anticipates that a favorable outcome will be reached in connection with those negotiations.

The Company does not believe that the ultimate resolution of these matters will have a material future effect on its financial statements.

 

NOTE 17 - SUBSEQUENT EVENTS

 

On December 11, 2018,February 27, 2020, the Company filed a lawsuit in the District Court of Clark County, Nevada against Kenyatto M. Jones and Bear Bull Market Dividends, Inc. regarding the matters and courses of action set out in the previously discussed lawsuit filed in August 2019 in the District Court of Collin County, Texas. In the Clark County Nevada lawsuit, the Company is seeking (a) rescission of the stock transactions described therein, (b) actual, consequential and incidental damages, (c) punitive/exemplary damages, as well as (d) declaratory and injunctive relief.

Effective as of February 28, 2020, (a) the Company and the relevant subsidiaries; (b) Robert Oblon (“Oblon”), a Co-Founder of the Company; (c) Jordan Brock, a Co-Founder of the Company; (d) certain officers and directors of the Company; and (e) certain other corporate parties entered into a LoanMulti-Party Settlement Agreement and Promissory Note (“loan agreement”(the “Settlement Agreement”) with Global Payroll Gateway pursuant to which the foregoing parties agreed to settle all prior disputes among them. This Settlement also resulted in an Order of Dismissal entered by the various courts in Denton and Collin County, Texas dismissing all litigation matters with prejudice, including an order dated March 3, 2020 vacating the two previously reported Show Cause Orders. Under the terms of the Settlement Agreement, the Company borrowed the principalagreed to pay Oblon an aggregate amount of $1,000,000. Borrowings under$2.3 million and to issue to Oblon 10.0 million restricted shares of its Class A common stock, $0.0001 par value. In connection with the loan agreement were payable in 52 weekly installments. On December 11, 2019Settlement Agreement, the parties also exchanged comprehensive, reciprocal, mutual releases. In addition, the Company paid in full all principal and interest then outstanding.Oblon, terminated the previously announced July 26, 2019 settlement agreement between them.

 

2021
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following section discusses management’s views of the financial condition and the results of operations and cash flows of Sharing Services Global Corporation (formerly Sharing Services, Inc.) and consolidated subsidiaries. This section should be read in conjunction with (a) our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019, and (b) our condensed consolidated financial statements included elsewhere in this Quarterly Report. This section may contain forward-looking statements. See “Cautionary Notice Regarding Forward-Looking Statements” above for a discussion of forward-looking statements and the inherent uncertainties, risks and assumptions associated therewith, which could cause actual results to differ materially from the projections contained in such forward-looking statements.

 

Highlights for the Three Months Ended OctoberJanuary 31, 2019:2020:

 

 For the three months ended OctoberJanuary 31, 2019,2020, our consolidated net sales increased by $20.9$5.7 million, to $38.9$31.6 million, compared to the three months ended OctoberJanuary 31, 2018;2019;
   
 For the three months ended OctoberJanuary 31, 2019,2020, our consolidated gross profit increased by $16.2$4.5 million, to $27.4$22.1 million, compared to the three months ended OctoberJanuary 31, 2018.2019. Our consolidated gross margin was 70.9%69.9% for the three months ended OctoberJanuary 31, 2019,2020, compared to 62.2%67.8% for the three months ended OctoberJanuary 31, 2018;2019;
   
 For the three months ended OctoberJanuary 31, 2019,2020, our consolidated operating earnings were $3.9$2.6 million compared to $866,802a consolidated operating loss of $2.1 million for the three months ended OctoberJanuary 31, 2018;2019;
   
 For the three months ended OctoberJanuary 31, 2019,2020, our consolidated net non-operating expenses were $4.0 million$9,079 compared to consolidated net non-operating income of $29.3 million$516,775 for the three months ended OctoberJanuary 31, 2018;2019;
   
 For the three months ended OctoberJanuary 31, 2019,2020, our consolidated net loss was $1.2earnings were $2.4 million compared to a consolidated net earningsloss of $30.2$2.6 million for the three months ended OctoberJanuary 31, 2018. Diluted2019. For the three months ended January 31, 2020, diluted earnings per share were $0.01, compared to a diluted loss per share was $0.01of $0.03 for the three months ended OctoberJanuary 31, 2019, compared to diluted earnings per share of $0.08 the three months ended October 31, 2018;2019;
   
 For the sixnine months ended OctoberJanuary 31, 2019,2020, our consolidated net cash provided by operating activities was $12.1$7.7 million compared to $624,322$826,402 for the sixnine months ended OctoberJanuary 31, 2018;2019;
   
 During the sixnine months ended OctoberJanuary 31, 2019,2020, we conducted a comprehensive assessment of our principal information technology systems.system. Based on this assessment, we intend to implement a system upgrade in the second half of the fiscalcalendar year 2020, at a projected cost of approximately $200,000;
   
 During the sixnine months ended OctoberJanuary 31, 2019,2020, we awarded to certain directors and employees warrants, with an aggregate fair value of $5.5 million, to purchase up to 27,500,000 shares of our common stock at an exercise price of $0.0001 per share;
   
 During the sixnine months ended OctoberJanuary 31, 2019,2020, we repurchased from a third-party (and retired) 1,500,000 shares of our class A common stock in exchange for $500 in cash; and
   
 During the sixnine months ended OctoberJanuary 31, 2019,2020, we repaid borrowings under financing arrangements aggregating $2.4$2.5 million and borrowings under convertible notes with an aggregate principal amount of $755,000, not including accrued interest.interest or unamortized debt discount; and
Effective on February 28, 2020, the Company and certain of its subsidiaries, Robert Oblon (“Oblon”), a Co-Founder of the Company, Jordan Brock, a Co-Founder of the Company, certain officers and directors of the Company, and certain other corporate parties entered into a Multi-Party Settlement Agreement pursuant to which the parties agreed to settle all disputes among them.

 

Overview

 

Summary Description of Business

 

Sharing Services Global Corporation (“Sharing Services” or “the Company”) is a diversifiedholding company, with Elepreneurs Holdings, LLC. and Elevacity Holdings, LLC. as its primary operating subsidiaries.The Company markets and distributes health and wellness products that are sold under the Elevate brand through a sales force of independent distributors, or Elepreneurs, using a marketing strategy which is a form of direct selling. The Company operates several websites, includingwww.shrginc.com,www.elepreneur.com andwww.elevacity.com.

The Company had no significant sales history prior to December 2017, when the Company launched its current Elevate health and wellness product line. The Company’s Elevate product line consists of Nutraceutical products that the Company refers to as “D.O.S.E.” (an acronym for the four mood-enhancing hormones contained therein:that our body produces: Dopamine, Oxytocin, Serotonin and Endorphins). The launch of this product line accelerated the Company’s growth and enabled the Company to expand its consolidated sales volume and operations at a rapid pace.

 

Recent Corporate Name Change

 

In January 2019, Sharing Services, Inc. changed its corporate name to Sharing Services Global Corporation to better reflect the Company’s strategic intent to grow its business globally. The corporate name change was approved by the Company’s stockholders and its Board.

 

Convertible Notes and Borrowing Under Short-term Financing Arrangements

 

Historically, the Company has funded a substantial portion of its liquidity and cash needs through the issuance of convertible notes and borrowings under short-term financing arrangements, and through the intermittent issuance of equity securities from time to time.securities. See “Liquidity and Capital Resources” below for additional information about the Company’s convertible notes and borrowings under short-term financing arrangements.

 

Information Technology System Upgrade

 

During the sixnine months ended OctoberJanuary 31, 2019,2020, the Company conducted a comprehensive assessment of its principal information technology systems,system, with a view of implementing a system upgrade that can accommodate the Company’s current and anticipated growth. We expect to implement a system upgrade in the second half of our fiscalcalendar year 2020, at a projected cost of approximately $200,000.

 

Industry and Business Trends

 

The information in “Industry and Business Trends” included in ITEM 1 “Business” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019 is incorporated herein by reference.

 

Results of Operations

 

The Three Months Ended OctoberJanuary 31, 20192020 compared to the Three Months Ended OctoberJanuary 31, 20182019

 

Net Sales

 

For the three months ended OctoberJanuary 31, 2019,2020, our consolidated net sales were $38.9increased by $5.7 million, or 22%, to $31.6 million, compared to $18.0 million for the three months ended OctoberJanuary 31, 2018. During both2019. This increase reflects the favorable impact of selective price increases (implemented during the second half of the fiscal year 2019 and during the nine months ended January 31, 2020), partially offset by a lower aggregate number of units sold in the three months ended OctoberJanuary 31, 20192020, compared to the three months ended January 31, 2019.

During the three months ended January 31, 2020 and 2018,2019,the Company derived approximately 98% and 97%, respectively, of its consolidated net sales from its Elevate health and wellness products launched in December 2017. During the three months ended OctoberJanuary 31, 2019,2020, approximately 50% of our consolidated net sales were to recurring customers (which we refer to as “SmartShip” sales), approximately 25% were to new customers and approximately 25% of our consolidated net sales were to our independent distributors.

 

Gross Profit

 

For the three months ended OctoberJanuary 31, 2019,2020, our consolidated gross profit was $27.4$22.1 million, compared to $11.2$17.6 million for the three months ended OctoberJanuary 31, 2018,2019. For the three months ended January 31, 2020 and 2019, our consolidated gross margins were 70.6%margin was 69.9% and 62.2%67.8%, respectively. During the three months ended OctoberJanuary 31, 2020, our consolidated gross margin mainly reflects selective price increases implemented during the second half of the fiscal year 2019 and during the nine months ended January 31, 2020 and a favorable shift in product mix (towards the sale of products with a relatively higher average unit price) resulting from changes costumer preferences in the ordinary course of business.

Selling and Marketing Expenses

For the three months ended January 31, 2020, our consolidated selling and marketing expenses increased to $14.3 million, or 45.1% of consolidated net sales, compared to $13.4 million, or 51.7% of consolidated net sales, for the three months ended January 31, 2019. The increase in consolidated selling and marketing expenses is mainly due to higher sales commissions of $1.3 million, which was due to an increase in our sales commission payout rate resulting from a new distributor compensation plan implemented in August 2019. This increase was partially offset by lower promotional trade show and sales convention expenses.

General and Administrative Expenses

For the three months ended January 31, 2020, our consolidated general and administrative expenses (which include employee compensation and benefits, share-based compensation, professional fees, rent and other occupancy costs, certain consulting fees, telephone and information technology expenses, insurance premiums, and other administrative expenses) decreased to $5.2 million, or 16.6% of consolidated net sales, compared to $6.3 million, or 24.1% of consolidated net sales, for the three months ended January 31, 2019. The decrease in consolidated general and administrative expenses primarily was due to lower stock-based compensation expense of $3.3 million, partially offset by higher employee compensation and benefits of $2.2 million.

Interest Expense, Net

For the three months ended January 31, 2020, our consolidated interest expense was $12,267, excluding interest of $33,007 associated with Type B lease obligations (as defined by GAAP) and amortization of debt discount of $4,103. Consolidated interest expense of $12,267 was almost entirely associated with short-term borrowings under financing arrangements.

For the three months ended January 31, 2019, our consolidated interest expense was $223,874, excluding amortization of debt discount of $221,599 and interest income of $8,318. Consolidated interest expense of $223,874 consisted of $196,107 associated with short-term borrowings under financing arrangements and $27,767 associated with our convertible notes.

Interest Income, Related Party

For the three months ended January 31, 2020, interest income on accounts receivable, related party was $67,520. For the three months ended January 31, 2019, there was no comparable amount.

Litigation Settlements and Other Non-Operating Expenses (Income)

For the three months ended January 31, 2020, the Company recognized an additional loss of $41,194 in connection with a settlement reached on February 28, 2020 between the Company and Company Co-founder, Robert Oblon. In addition, the Company recognized a gain on extinguishment of debt of $13,672 in connection with modification of a promissory note.

For the three months ended January 31, 2019, our consolidated non-operating expenses include a loss on impairment of an investment of $79,620.

Provision for Income Taxes

During its fiscal year ended April 30, 2019, the Company’s consolidated operating loss was $1.1 million. During the nine months ended January 31, 2020, the Company’s consolidated operating earnings were $6.5 million. The Company believes it is probable it will utilize its available net operating losses in the foreseeable future and, for the three months ended January 31, 2020, recognized a provision for income taxes of $225,000. See Note 2 of the Notes to Consolidated Financial Statements in ITEM 8“Financial Statements and Supplementary Data” contained in our Annual Report for the fiscal year ended April 30, 2019 for more information.

Net Earnings and Earnings per Share

For the three months ended January 31, 2020, our consolidated net earnings were $2.4 million compared to a consolidated net loss of $2.6 million for the three months ended January 31, 2019. For the three months ended January 31, 2020, diluted earnings per share were $0.01, compared to a diluted loss per share of $0.03 for the three months ended January 31, 2019.

The Nine Months Ended January 31, 2020 compared to the Nine Months Ended January 31, 2019

Net Sales

For the nine months ended January 31, 2020, our consolidated net sales increased by $49.1 million to $106.0 million, compared the nine months ended January 31, 2019. This increase reflects mainly the accelerated growth of our business following the 2007 launch of our Elevatehealth and wellness product line and the favorable impact of selective price increases (implemented during the second half of the fiscal year 2019 and during the nine months ended January 31, 2020).

During the nine months ended January 31, 2020 and 2019,the Company derived approximately 98% and 97%, respectively, of its consolidated net sales from its Elevate health and wellness products launched in December 2017. During the nine months ended January 31, 2020, approximately 50% of our consolidated net sales were to recurring customers (which we refer to as “SmartShip” sales), approximately 25% were to new customers and approximately 25% were to our independent distributors.

Gross Profit

For the nine months ended January 31, 2020, our consolidated gross profit was $75.0 million, compared to $36.7 million for the nine months ended January 31, 2019. For the nine months ended January 31, 2020 and 2019, our consolidated gross margin was 70.7% and 64.6%, respectively. During the nine months ended January 31, 2020, our consolidated gross margin benefited from economies of scale, due to an increase in the volume of product shipped compared to the volume of product shipped during the threenine months ended OctoberJanuary 31, 2018,2019, and from selective price increases implemented during the second half of the fiscal year 2019 and during the sixnine months ended OctoberJanuary 31, 2019.2020.

 

Selling and Marketing Expenses

 

For the threenine months ended OctoberJanuary 31, 2019,2020, our consolidated selling and marketing expenses increased to $19.0$49.1 million, or 48.9%46.3% of consolidated net sales, compared to $8.2$27.6 million, or 45.5%48.6% of consolidated net sales, for the threenine months ended OctoberJanuary 31, 2018.2019. The increase in consolidated selling and marketing expenses is mainly due to higher sales commissions of $10.3$21.3 million (which reflects an increaseincreases in our sales commission payout rate implemented sincein November 1, 2018 as well asand in August 2019) and incremental marketing expense of $0.2 million, partially offset by lower promotional trade show and sales convention expenses.

 

General and Administrative Expenses

 

For the threenine months ended OctoberJanuary 31, 2019,2020, our consolidated general and administrative expenses (which include corporate employee compensation and benefits, share-based compensation, professional fees, rent and other occupancy costs, certain consulting fees, telephone and information technology expenses, insurance premiums, and other administrative expenses) increased to $4.5$19.4 million, or 11.5%18.3% of consolidated net sales, compared to $2.1$10.0 million, or 11.9%17.6% of consolidated net sales, for the threenine months ended OctoberJanuary 31, 2018.2019. The increase in consolidated general and administrative expenses primarily was due to higher employee compensation and benefits of $1.7$5.7 million, higher stock-based compensation expense of $2.2 million, higher legal and other professional fees of $426,937,$1.0 million, incremental expenses mainly associated with our ongoing IT system upgrades of $0.4 million, and higher rentinsurance expense, no-capitalizable information technology expense and other occupancy-relatedcorporate expenses. This increase was partially offset by lower consulting fees of $0.4 million.

 

22

Interest Expense, Net

 

For the threenine months ended OctoberJanuary 31, 2019,2020, our consolidated interest expense was $66,204,$379,440, excluding interest of $37,799$108,025 associated with Type B lease obligations (as defined by GAAP), amortization of debt discount of $12,168$49,268 and interest income of $7,340. Interest$15,620. Consolidated interest expense of $379,440 consisted of $51,529$333,559 associated with short-term borrowings under financing arrangements and $16,802$45,881 associated with our convertible notes.

 

For the threenine months ended OctoberJanuary 31, 2018,2019, our consolidated interest expense was $116,317,$300,677, excluding amortization of debt discount of $509,711$1,066,612, prepayment penalties of $123,435 associated with our convertible notes, and primarily wasinterest income of $24,953. Consolidated interest expense of $300,677 consisted of $160,628 associated with short-term borrowings under financing arrangements and $140,049 associated with our convertible notes.

 

Interest Income, Related Party

 

For the threenine months ended OctoberJanuary 31, 2019,2020, interest income on accounts receivable, related party, were $138,546.was $206,066. For the threenine months ended OctoberJanuary 31, 2018,2019, there was no comparable amount.

Litigation Settlements and Other Non-OperatingNon-operating Expenses

For the threenine months ended OctoberJanuary 31, 2019,2020, our consolidated non-operating expenses include litigation settlements and other non-operating expenses of $4.0$4.3 million, including, among other things, an estimated loss of $2.9$2.95 million from the settlement of certain legal claims and counterclaims between the Company and certain of its affiliated entities, and Company founder and former consultant,Co-founder, Robert Oblon,Oblon; a loss of $425,000 in connection with the Release and Settlement Agreement by and between the Company and 212 Technologies andTechnologies; a loss of $317,105 on impairment of a promissory note receivable.receivable and an impairment loss in the amount of $187,500 in connection with the Company’s investment in an unconsolidated entity. For the threenine months ended OctoberJanuary 31, 2018, there was no comparable amount.2019, our consolidated non-operating expenses include a loss on impairment of an investment of $82,320.

25

Net Change in Fair Value of Derivative Liabilities

 

For the threenine months ended OctoberJanuary 31, 2018,2019, the change in the fair value of our derivative liabilities resulted in a net gain of $29.9 million. The Company accounts for the conversion features of its convertible notes, stock options and stock warrants under Accounting Standards Codification (“ASC”) Topic No. 815,Derivatives and Hedging. During the threenine months ended OctoberJanuary 31, 2019,2020, the Company had no derivative liabilities.

 

Provision for Income Taxes

 

During its fiscal year ended April 30, 2019, the Company’s consolidated operating loss was $1.1 million. During the sixnine months ended OctoberJanuary 31, 2019,2020, the Company’s consolidated operating earnings were $3.9$6.5 million. The Company believes it is probable it will utilize its available net operating losses in the foreseeable future and, for the threenine months ended OctoberJanuary 31, 2019,2020, recognized a provision for income taxes of $1.1$1.6 million. See Note 2 of the Notes to Consolidated Financial Statements in ITEM 8 “Financial Statements and Supplementary Data” contained in our Annual Report for the fiscal year ended April 30, 2019 for more information.

 

Net Earnings and Earnings per Share

For the three months ended October 31, 2019, our consolidated net loss was $1.2 million compared to consolidated net earnings of $30.2 million for the three months ended October 31, 2018. For the three months ended October 31, 2019, diluted loss per share was $0.01, compared to diluted earnings per share of $0.08, for the three months ended October 31, 2018.

The Six Months Ended October 31, 2019 compared to the Six Months Ended October 31, 2018

 

Net Sales

For the sixnine months ended OctoberJanuary 31, 2019,2020, our consolidated net salesearnings were $74.3 million,$294,255, compared to $30.9$27.4 million for the sixnine months ended October 31, 2018. During both the six months ended OctoberJanuary 31, 2019 and 2018,the Company derived approximately 98% of its consolidated net sales from its Elevate health and wellness product line launched in December 2017. During the six months ended October 31, 2019, approximately 50% of our consolidated net sales were to recurring customers and approximately 25% of our consolidated net sales were to our independent distributors.

Gross Profit

For the six months ended October 31, 2019, our consolidated gross profit was $52.8 million, compared to $19.1 million for the six months ended October 31, 2018, and our consolidated gross margin was 71.1% and 61.9%, respectively. During the six months ended October 31, 2019, our consolidated gross margin benefited from economies of scale, due to an increase in the volume of product shipped compared to the volume of product shipped during the six months ended October 31, 2018, and selective price increases implemented during the second half of the fiscal year 2019 and during the six months ended October 31, 2019.

23

Selling and Marketing Expenses

For the six months ended October 31, 2019, our consolidated selling and marketing expenses increased to $34.8 million, or 46.9% of consolidated net sales, compared to $14.2 million, or 46.0% of consolidated net sales, for the six months ended October 31, 2018. The increase in consolidated selling and marketing expenses is mainly due to higher sales commissions of $20.0 million (which reflects an increase in our sales commission payout rate implemented since November 1, 2018 as well as in August 2019) and incremental promotional trade show and sales convention expenses.

General and Administrative Expenses

For the six months ended October 31, 2019, our consolidated general and administrative expenses (which include corporate employee compensation and benefits, share-based compensation, professional fees, rent and other occupancy costs, certain consulting fees, telephone and information technology expenses, insurance premiums, and other administrative expenses) increased to $14.1 million, or 19.0% of consolidated net sales, compared to $3.7 million, or 12.0% of consolidated net sales, for the six months ended October 31, 2018. The increase in consolidated general and administrative expenses primarily was due to higher stock-based compensation expense of $5.5 million, employee compensation and benefits of $3.5 million, higher legal and other professional fees of $1.0, and higher rent and other occupancy-related expenses.

Interest Expense, Net

For the six months ended October 31, 2019, our consolidated interest expense was $367,174, excluding interest of $74,755 associated with Type B lease obligations, amortization of debt discount of $45,166 and interest income of $15,358. Interest expense consisted of $324,932 associated with short-term borrowings under financing arrangements and $44,369 associated with our convertible notes.

For the six months ended October 31, 2018, our consolidated interest expense was $183,604, excluding amortization of debt discount of $845,011, and primarily was associated with our convertible notes.

Interest Income, Related Party

For the six months ended October 31, 2019, interest income on accounts receivable, related party, were $138,546. For the six months ended October 31, 2018, there was no comparable amount.

Litigation Settlements and Other Non-operating Expenses

For the six months ended October 31, 2019, our consolidated non-operating expenses include litigation settlements and other non-operating expenses of $4.6 million, including an estimated loss of $2.9 million from the settlement of certain legal claims and counterclaims between the Company and certain of its affiliated entities, and Company founder and former consultant, Robert Oblon; a loss of $425,000 in connection with the Release and Settlement Agreement by and between the Company and 212 Technologies; and a loss of $317,105 on impairment of a promissory note receivable. For the six months ended October 31, 2018, there was no comparable amount.

(seeNet Change in Fair Value of Derivative Liabilities

above). For the sixnine months ended OctoberJanuary 31, 2018, the change in the fair value of our derivative liabilities resulted in a net gain of $29.9 million. The Company accounts for the conversion features of its convertible notes, stock options and stock warrants under Accounting Standards Codification (“ASC”) Topic No. 815,Derivatives and Hedging. During the three months ended October 31, 2019, the Company had no derivative liabilities.

Provision for Income Taxes

During its fiscal year ended April 30, 2019, the Company’s consolidated operating loss was $1.1 million. During the six months ended October 31, 2019, the Company’s consolidated operating earnings were $3.9 million. The Company believes it is probable it will utilize its available net operating losses in the foreseeable future and, for the six months ended October 31, 2019, recognized a provision for income taxes of $1.4 million. See Note 2 of the Notes to Consolidated Financial Statements in ITEM 8“Financial Statements and Supplementary Data” contained in our Annual Report for the fiscal year ended April 30, 2019 for more information.

24

Net Earnings and Earnings per Share

For the six months ended October 31, 2019, our consolidated net loss was $2.1 million compared to net earnings of $30.1 million for the six months ended October 31, 2018. For the six months ended October 31, 2019, diluted loss per share was $0.2, compared to2020, diluted earnings per share of $0.10were $0.00, compared to $0.12 for the sixnine months ended OctoberJanuary 31, 2018.2019.

 

Liquidity and Capital Resources

 

We broadly define liquidity as our ability to generate sufficient cash, from internal and external sources, to meet our obligations and commitments. We believe that, for this purpose, liquidity cannot be considered separately from capital resources.

 

Working Capital

 

As of OctoberJanuary 31, 2019,2020, cash and cash equivalents were $12.8$8.2 million. Based upon the current level of operations and anticipated investments necessary to grow our business, we believe that existing cash balances and anticipated funds from operations will likely be sufficient to meet our working capital requirements, and to fund potential acquisitions and capital expenditures, including potential investments in information technology, over the next 12 months. However, when needed to compensate for any temporary fluctuations in our working capital needs, compared to our operating cash flows, we may obtain occasional additional financing through the issuance of equity securities and secured and unsecured debt, including borrowings under convertible notes and short-term financing arrangements.

 

Historical Cash Flows

 

Historically, our primary sources of cash have been capital transactions involving the issuance of equity securities and secured and unsecured debt (See “Recent Issuances of Equity Securities” and “Short-term Borrowings and Convertible Notes” below) and cash flows from operating activities; and our primary uses of cash have been for operating activities, capital expenditures, acquisitions, net cash advances to related parties, and debt repayments in the ordinary course of our business.

 

The following table summarizes our cash flow activities for the sixnine months ended OctoberJanuary 31, 2019,2020, compared to the sixnine months ended OctoberJanuary 31, 2018:2019:

 

 Six Months Ended October 31,  Nine Months Ended January 31, 
 2019  2018  Increase (Decrease)  2020  2019  Increase (Decrease) 
Net cash provided by operating activities $12,127,776  $624,322  $11,503,454  $7,683,446  $826,402  $6,857,044 
Net cash used in investing activities  (119,675)  (97,206)  22,469   (156,000)  (324,801)  (168,801)
Net cash used in financing activities  (3,130,262)  (196,135)  2,934,127 
Net cash (used in) provided by financing activities  (3,257,185)  1,633,809   4,890,994 
Net increase in cash and cash equivalents $8,877,839  $330,981  $8,546,858  $4,270,261  $2,135,410  $2,134,851 

 

26

Net Cash Provided by Operating Activities

 

Net cash provided by operating activities increased by $11.5$6.9 million for the sixnine months ended OctoberJanuary 31, 2019,2020, compared to the sixnine months ended OctoberJanuary 31, 2018.2019. This increase was mainly due to an increase in profitability of $8.2 million, excluding non-cash items, such as depreciation and amortization, change in fair value of derivative liabilities, stock-based compensation (a non-cash expense)expense, amortization of $5.6 milliondebt discount, losses on impairment of investments in unconsolidated entities and a note receivable, and estimated settlement liability. This increase was partially offset by net changes in operating assets and liabilities of $8.1 million. This increase was partially offset by an increase in cash payments for income taxes and interest, in the aggregate, of $1.5$1.4 million.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities increaseddecreased by $22,454$168,801 for the sixnine months ended OctoberJanuary 31, 2019,2020, compared to the sixnine months ended OctoberJanuary 31, 2018.2019. This increasedecrease was due to change in accounts receivable from related parties of $58,687, partially offset by$95,739, lower capital expenditures of $16,218$53,062, and a $20,000 decrease in cash paid for acquisitions.

 

Net Cash Used in(Used in) Provided by Financing Activities

 

Net cash used in financing activities increased by $2.9$4.9 million for the sixnine months ended OctoberJanuary 31, 2019,2020, compared to the sixnine months ended OctoberJanuary 31, 2018.2019. This increase was mainly due to higher net repayments ($2.94.7 million) of borrowings under short-term financing arrangements and convertible promissory notes, and due to lower proceeds from issuances of stock.

Legal Proceedings

The information contained in Part II, Item 1. Legal Proceedings, of this Quarterly Report is incorporated herein by reference.

Potential Future Acquisitions

 

Subject to approval by its Board of Directors, the Company 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, and issuance of equity securities and debt.

 

Recent Issuances of Equity Securities

 

Common Stock

 

Duringthe nine months ended January 31, 2020:

 Duringthe six months ended October 31, 2019, holders of 10,400,000 shares of the Company’sSeries Aconvertiblepreferred stockand holders of 50,000 shares of the Company’s convertibleSeries C preferred stock converted their holdings into an equal number of shares of the Company’s common stock;
   
 Duringthe six months ended October 31, 2019, the Company issued 10,000,000 shares of its class A common stock to a director upon the exercise of stock warrants previously awarded in connection with the director’s employment agreement.agreement;
   
 Duringthe six months ended October 31, 2019, holder of certain of the Company’s convertible promissory notes converted $28,000 in accrued but unpaid interest into 2,800,000 shares of the Company’s class A common stock
the Company repurchased from a third-party (and retired) 1,500,000 shares of its class A common stock in exchange for $500 in cash.
   
 Duringthe six months ended October 31, 2019, the Company issued 215,325 shares of its class A common stock in exchange for services, and 30,000 shares for cash under prior subscription agreements.

 

Short-term Borrowings and Convertible Notes

 

Borrowing Under Financing Arrangements (Notes Payable)

 

As of OctoberJanuary 31, 2019, notes payable, consisting of short-term2020, there were no borrowings outstanding under financing arrangements with third-party institutions, were $115,385, net of unamortized debt discount of $11,538.arrangements. See Note 9 of the Condensed Notes to Consolidated Financial Statements in ITEM 1 “Financial Statements” contained elsewhere in this Quarterly Report for more information about the Company’s’ short-term borrowings under financing arrangements.

 

Convertible Notes Payable

 

As of OctoberJanuary 31, 2019,2020, convertible notes payable consists of a note in the amount of $100,000 held by RB Capital Partners, Inc.an unaffiliated lender and a note in the amount of $50,000 held by another unaffiliated lender, excluding unamortized debt discount of $29,395.$39,264. See Note 11 of the Condensed Notes to Consolidated Financial Statements in ITEM 1 “Financial Statements” contained elsewhere in this Quarterly Report for more information about our Convertible Notes Payable.

Capital Requirements

 

During the sixnine months ended OctoberJanuary 31, 2019,2020, capital expenditures for property and equipment (consisting of furniture and fixtures, computer equipment and software, other office equipment and leasehold improvements) in the ordinary course of our business were $114,038.$150,363.

 

Contractual Obligations

 

There were no material changes to our contractual cash obligations during the sixnine months ended OctoberJanuary 31, 2019,2020, except for our repayment of borrowings under under short-term financing arrangements and convertible notes described above.

 

Off-Balance Sheet Financing Arrangements

 

As of OctoberJanuary 31, 2019, and April 30, 2018,2020, we had no off-balance sheet financing arrangements. See Note 2 of the Condensed Notes to the Consolidated Financial Statements above for information about the Company’s adoption of Accounting Standards Codification Topic 842,Leases.

 

Inflation

 

We believe inflation did not have a material effect on our results of operations during the periods presented in this Quarterly Report.

 

Critical Accounting Estimates

 

There have been no material changes to our critical accounting estimates or assumptions during the sixnine months ended OctoberJanuary 31, 2019.2020.

 

Accounting Changes and Recent Accounting Pronouncements

 

For discussion of accounting changes and recent accounting pronouncements, see Note 2 of the Condensed Notes to the Consolidated Financial Statements contained in Item 1 of this Quarterly Report.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

The Company is a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act, and, accordingly, is not required to provide the information called for by this Item.

 

Item 4. Controls and Procedures.

 

Controls Evaluation and Related CEO and CFO Certifications.Our management, with the participation of our principal executive officer (“CEO”) and principal financial officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of OctoberJanuary 31, 2019.2020.

 

Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this Quarterly Report. This “Controls and Procedures” section discusses the above-described Certifications and the evaluation of “disclosure controls” referred to therein. Accordingly, this section should be read in conjunction with such Certifications.

 

Limitations on the Effectiveness of Controls.We do not expect that our disclosure controls and procedures 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 objectives 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 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 perform this type of evaluation on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can accompany our Quarterly Report 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 CFO concluded that, as of OctoberJanuary 31, 2019,2020, we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be 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 our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

 

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

 

We implemented internal controls to ensure we adequately evaluated our lease agreements and properly implemented the new lease accounting standard effective May 1, 2019. There were no significant changes in our internal control over financial reporting as a result of implementation of this new standard.

27

 

PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

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

 

In January 2019, the Company became aware of an unliquidated amount of potential liability arising from a series of cash advance loan transactions (“(the “Loan Transactions”) entered into by eight different lending sources and a Related Party entity (“debtor(the “debtor entity”) owned and/or controlled by a former Company officer. Without the knowledge of the Company and in contravention of the express provisions of both the Company’s Bylaws and the controlling Nevada Revised Statutes, this former officer also purported to obligate the Company (and two of the Company’s affiliates) to repay the amounts owed by the debtor entities under the Loan Transactions. At this time, the Company has resolved all of the debt associated with the Loan Transactions at a substantial discount from the amounts alleged by the holders of such debt. Additionally, the Company has entered into a comprehensive agreement, secured by substantial assets, with the former officer and the entity owned and/or controlled by the former officer. Pursuant to such agreement, the former officer and the entity owned and controlled by such former officer are obligated jointly and severally to repay the Company all sums expended by the Company in the resolution of the Loan Transactions. The amount expended by the Company, in connection with such resolution, is the sum of $3.4 million. At April 30, 2019, theThe Company has recorded an accounts receivable of $3.4 million from the former officer and the entity owned and/or controlled by the former officer. This amount is reported in accounts receivable, related party in our consolidated balance sheet.

 

In June 2019, the Company became aware of a potential liability arising out of certain previous transactions involving the formation and capitalization of two legal entities affiliated with a Company consultant who was, at the time, considered the Company spokesperson. Without the knowledge of the Company and in contravention of the express provisions of both the Company’s Bylaws and the controlling Nevada Revised Statutes, this Company consultant purportedly solicited investment funds from various persons, who at the time, were independent contractors of the Company. While this matter is still currently under investigation, the Company has reason to believe that this Company consultant, possibly acting in concert with others, sought to leverage the assets and resources of the Company in furtherance of these ventures, to their personal pecuniary benefit. Upon learning of these allegations from various of these investors, the Company launched an immediate internal investigation into these transactions. In addition, the Company secured the services of a Dallas-based law firm with experience in financial impropriety and forensic investigations to assist in that process. The Company believes that it is probable that these actions have resulted in a material loss to the investing parties and is evaluating the potential exposure of these events to the Company. The Company is continuing to finalize its evaluation and to pursue settlements with the impacted investing parties.

 

On July 26, 2019, the Company and certain of its subsidiaries entered into a Settlement Agreement (the “Agreement”) with Company co-founder and former consultant Robert Oblon. Pursuant to the Agreement and in compromise of a dispute concerning a prior contractual obligation and various competing claims, the Company agreed to pay Mr. Oblon the aggregate amount of $2.2 million, payable in 96 equal semi-monthly installments, and stock warrants to purchase up to 7.0 million restricted shares of the Company’s common stock, subject to limiting conditions. On August 30, 2019, the Company ceased making the installment payments and filed a lawsuit against Mr. Oblon claiming, among other things, Mr. Oblon’s breach of contract related to this Agreement, as further discussed below. During the three and sixnine months ended OctoberJanuary 31, 2019,2020, the Company made payments under the Agreement of $120,000$0.0 and $235,000, respectively. At October 31, 2019, theThe Company has recognized an estimated settlement liability of $2.9 million in connection with the Agreement.

Please see the last paragraph in this section.

 

In July 2019, Pruvit Ventures, Inc. filed a lawsuit against Elevacity U.S., LLC, a wholly owned subsidiary of the Company, alleging breach of contract by Elevacity. Elevacity has denied the Plaintiff’s claim. Discovery was propounded on the Plaintiff specifically related to the alleged act of wrong-doing, responses were received by the Company on December 6, 2019 and the Company is currently evaluating the responses.

 

In August 2019, Entrepreneur Media, Inc. (“EMI”) notified the Company that EMI believes that the Company’s pending trademark application for “Elepreneurs” would confuse consumers due to the purported similarity to EMI’s existing trademark for the word “Entrepreneur.” The Company believes that this claim is without merit and intends to vigorously defend its trademark application. EMI has reached out to the Company and the parties are now engaged in dialogue intended to achieve a possible amicable resolution.

On August 30, 2019, the Company and certain of its affiliated entities filed a lawsuit in the District Court of Collin County, Texas against Company founderco-founder and former consultant, Robert Oblon. The lawsuit claims breach of contract related to the Settlement Agreement dated July 26, 2019, tortious interference with business relationships, and misappropriation of trade secrets, and sought injunctive relief. The Company and such affiliated entities filed an amended petition in September 2019 and were awarded temporary injunctive relief protecting their intellectual property. The Company and such affiliated entities filed a second amended petition in December 2019 and were awarded injunctive relief requiring the turnover of certain intellectual and other property to the Company. Please see the last paragraph in this section.

 

OnIn August 31, 2019, the Company filed a lawsuit in the District Court of Collin County, Texas against Kenyatto M. Jones, Bear Bull Market Dividends, Inc. and Research and Referral, BZ for breach of contract, statutory fraud in a stock transaction, and violations of the Texas Securities Act. The three defendants purport to be beneficial owners of shares of the Company’s equity securities, which purported ownership is the subject of the referenced lawsuit. The relief sought in the lawsuit includes both recovery of damages and rescission of the underlying shares of the Company’s equity securities.

In Defendants Bear Bull and Jones filed a Motion to Transfer the complaint in September 2019,2019. A hearing on the Company and a former consultantDefendants’ Motion to the Company agreed to settle a legal dispute between the Company and the consultant. As of the date herein the parties are in the process of formalizing the settlement. The CompanyTransfer has accrued all costs and expenses associated with the settlement in the three months ended July 31, 2019.been set.

 

As of September 16, 2019, the Company and 212 Technologies, LLC (“212 Technologies”) entered into a Release and Settlement Agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the parties: (i) rescinded a certain “Stakeholder & Investment Agreement” dated May 21, 2017 (resulting in the return of 5,628,750 shares of the Company’s Series A Preferred Stock by 212 Technologies and the return of a 24% ownership stake in 212 Technologies by the Company) and (ii) terminated a certain “Software License Agreement” dated June 12, 2018 (the “SLA”) by and between 212 Technologies and Elepreneurs, LLC, a wholly owned subsidiary of the Company (“Elepreneurs”). In connection with the Settlement Agreement, Elepreneurs agreed to pay 212 Technologies the amount of $425,000 and to dismiss, with prejudice, a certain lawsuit it had previously filed concerning the functionality of the mobile application produced by 212 Technologies under the SLA, and the parties reached mutually accommodating terms and resolved all issues between their respective companies. As of the date hereof, the shares returned by 212 Technologies remain outstanding and are held byunder the terms of a custodian agreement for the benefit of the Company.

 

On October 1, 2019, the Company filed a complaint in the District Court of Clark County, Nevada entitled Sharing Services Global Corporation v. Bear Bull Market Dividends, Inc., Alchemist Holdings, LLC, Kenyatto M. Jones, et al.,Case No. A-19-802861-B. The lawsuit asserts that athe Certificate of Designation for its Series B Preferred Stock filed on or about April 24, 2017 (the “Defective Certificate”) was in contravention of both the Company’s Articles of Incorporation and Nevada law. Additionally, the lawsuit alleges that the Defective Certificate was improperly approved through the self-dealing actions of certain former Company executives, working in collusion with outside shareholders. The lawsuit seeks relief in the form of an injunction enjoining the defendants from attempting to enforce the provisions of the Defective Certificate and a declaratory judgment that will invalidate the improper portions of the Defective Certificate. The lawsuit also requests declaratory judgment relief regarding the terms of the Amended and Restated Certificate of Designation filed by the Company on or about September 26, 2019 (the “Amended Certificate”) which seeks to correct the improper provisions of the Defective Certificate and to properly realign the rights of the shareholders which were improperly diminished by the terms of the Defective Certificate. The District Court of Clark County issued a default judgment against Defendant Bear Bull Market Dividends, Inc. on November 14, 2019 and against Defendant Kenyatto MM. Jones on November 15, 2019. The Company is in negotiations with Defendant Alchemist Holdings, LLC and anticipates that a favorable outcome will be reached in connection with those negotiations.

 

TheOn February 27, 2020, the Company does not believe thatfiled a lawsuit in the ultimate resolutionDistrict Court of theseClark County, Nevada against Kenyatto M. Jones and Bear Bull Market Dividends, Inc. regarding the matters will haveand courses of action set out in the previously discussed lawsuit filed in August 2019 in the District Court of Collin County, Texas. In the Clark County Nevada lawsuit, the Company is seeking (a) rescission of the stock transactions described therein, (b) actual, consequential and incidental damages, (c) punitive/exemplary damages, as well as (d) declaratory and injunctive relief.

Effective as of February 28, 2020, (a) the Company and the relevant subsidiaries; (b) Robert Oblon (“Oblon”), a material future effect onCo-Founder of the Company; (c) Jordan Brock, a Co-Founder of the Company; (d) certain officers and directors of the Company; and (e) certain other corporate parties entered into a Multi-Party Settlement Agreement (the “Settlement Agreement”) pursuant to which the foregoing parties agreed to settle all prior disputes among them. This Settlement also resulted in an Order of Dismissal entered by various courts in Denton and Collin County, Texas dismissing all litigation matters with prejudice, including an order dated March 3, 2020 vacating the two previously reported Show Cause Orders. Under the terms of the Settlement Agreement, the Company agreed to pay Oblon an aggregate amount of $2.3 million and to issue to Oblon 10.0 million restricted shares of its financial statements.Class A common stock, $0.0001 par value. In connection with the Settlement Agreement, the parties also exchanged comprehensive, reciprocal, mutual releases. In addition, the Company and Oblon, terminated the previously announced July 26, 2019 settlement agreement between them.

31

 

Item 1A. Risk Factors.

 

In addition to the factors contained in ITEM 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019, you should consider the following risk factors:

 

We are a party to lawsuits and other claims that may result in adverse outcomes.

We are subject to a variety of claims and lawsuits. These claims may arise from a wide variety of business practices and initiatives, including acquisition-related contingencies, disputes between the Company and certain former officers, disputes between the Company and certain shareholders, and disputes between certain Company founders, as further detailed elsewhere in this Quarterly Report. Adverse outcomes in any or all of these claims may result in significant monetary damages or injunctive relief that could adversely affect our business. The litigation and other claims are subject to inherent uncertainties and management’s view of these matters may change in the future. A material adverse impact in our consolidated financial statements could occur for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable.

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

 

We modify aspects of our sales compensation plan from time to time to keep our sales compensation plan competitive and attractive to our existing and future sales force, to address changing market conditions, to provide incentives that we believe will help grow our business and to conform to changing government regulations, among other reasons. For example, we modified our compensation plan in November 2018the fiscal year 2019 and again in August 2019. 2019.In addition, we may be required to modify our sales compensation plan from time to time to comply with additional regulations in the future. Changes to our sales compensation plan, including changes perceived to reduce sales commissions earned by our sales force, could be negatively received by our sales force, could fail to achieve the desired long-term goals, and could adversely impact our financial condition, results of operations and cash flows.

 

Past or future reformulations of our products, including as a result of potential governmental enforcement action, could be negatively received by our sales force and customers and adversely impact future sales.

 

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

Item 2. Unregistered Sales of Securities and Use of Proceeds.

 

(a) Not applicable

 

(b) Not applicable

 

(c) Not applicable

 

Item 3. Defaults Upon Senior Securities.

 

(a) Not applicable

(b) Not applicable

 

Item 4. Mining Safety Disclosures.

 

Not applicable

 

Item 5. Other Information.

 

(a) Not applicable

 

(b) Not applicable

 

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Item 6. Exhibits.

 

The following exhibits are filed as part of this Quarterly Report unless otherwise indicated:

 

3.1 Amended and Restated Articles of Incorporation of Sharing Services Global Corporation, which is incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 24, 2019
   
3.2 Bylaws of Sharing Services Global Corporation, which is incorporated herein by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 24, 2019
   
4.1 Certificate of Designations of Series A Preferred Stock, which is incorporated herein by reference from Exhibit 3.1.2 to the Company’s Current Report on Form 8-K filed on May 8, 2017
   
4.2 Certificate of Designations of Series B Preferred Stock, which is incorporated herein by reference from Exhibit 3.1.3 to the Company’s Current Report on Form 8-K filed on May 8, 2017
   
4.3 Amendment to Certificate of Designations of Series B Preferred Stock, which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on August 29, 2019
   
4.4 Certificate of Designations of Series C Preferred Stock, which is incorporated herein by reference from Exhibit 3.1.4 to the Company’s Current Report on Form 8-K filed on May 8, 2017
   
4.5Convertible Promissory Note dated February 8, 2018 issued by Sharing Service, Inc. in favor of RB Capital Partners, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on February 13, 2018
4.6Convertible Promissory Note dated March 16, 2018 issued by Sharing Service, Inc. in favor of RB Capital Partners, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on March 23, 2018
4.7 Convertible Promissory Note dated April 13, 2018 issued by Sharing Service, Inc. in favor of RB Capital Partners, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on April 19, 2018
   
10.1 Share Exchange Agreement dated May 23, 2017 by and between Sharing Service, Inc., Total Travel Media, Inc., and the Equity Holders of Total Travel Media, Inc., which is incorporated herein by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K/A filed on September 21, 2017
   
10.2 Share Exchange Agreement dated September 29, 2017 by and between Sharing Service, Inc., Four Oceans Holdings, Inc., and the Equity Holders of Four Oceans Holdings, Inc., which is incorporated herein by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on October 5, 2017
   
10.3 Share Exchange Agreement dated October 4, 2017 by and between Sharing Service, Inc., 561 LLC, and the Equity Holders of 561 LLC, which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on October 10, 2017
   
10.6 Share Exchange Agreement dated October 4, 2017 by and between Sharing Service, Inc., America Approves Commercial LLC and the Equity Holders of America Approves Commercial LLC, which is incorporated herein by reference from Exhibit 1.2 to the Company’s Current Report on Form 8-K filed on October 10, 2017
   
10.7 Share Exchange Agreement dated October 4, 2017 by and between Sharing Service, Inc., Medical Smart Care LLC and the Equity Holder of Medical Smart Care LLC, which is incorporated herein by reference from Exhibit 1.3 to the Company’s Current Report on Form 8-K filed on October 10, 2017
   
10.8 Share Exchange Agreement dated October 4, 2017 by and between Sharing Service, Inc., LEH Insurance Group LLC and the Equity Holder of LEH Insurance Group LLC, which is incorporated herein by reference from Exhibit 1.4 to the Company’s Current Report on Form 8-K filed on October 10, 2017
   
10.9 Amended and Restated Executive Employment Agreement dated March 4, 2018 by andeffective as of May 16, 2019 between Sharing Service, Inc. and Frank A. Walters which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on March 8, 2018and Sharing Service Global Corporation *
   
10.10 Amended and Restated Executive Employment Agreement dated February 28, 2018 byeffective as of May 16, 2019 between John “JT” Thatch and between Sharing Service Inc. and John Thatch, which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K/A filed on March 28, 2018Global Corporation *
   
10.11Addendum to Executive Employment Agreement by and between Sharing Service, Inc. and John Thatch, which is incorporated herein by reference from Exhibit 1.2 to the Company’s Current Report on Form 8-K/A filed on March 28, 2018
10.12 Form of Elepreneur Agreement, which is incorporated herein by reference from Exhibit 10.20 to the Company’s registration Statement on Form 10-12G/A filed on December 13, 2018
10.1310.12 Sharing Services Global Corporation Elepreneurs Compensation Plan of 2019, *which is incorporated herein by reference from Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q filed on December 16, 2019
   
10.14Loan Agreement and Promissory Note by and Between Sharing Services, Inc. and Global Payroll Gateway, Inc., which is incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 17, 2018
10.1510.13 Letter of resignation of Robert Oblon, which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on February 7, 2019
   
10.1610.14 Letter of resignation from the Board of Directors of Frank A. Walters, which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on May 23, 2019
   
10.1710.15 Settlement Agreement between Sharing Service Global Corporation, Elevacity U.S., LLC, Elepreneurs U.S., LLC and Robert Oblon dated as of July 26, 2019, which is incorporated herein by reference from Exhibit 10.22 to the Company’s Quarterly Report on Form 10-Q filed on September 16, 2019
   
31.1 Certification of John Thatch pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
   
31.2 Certification of Frank A. Walters pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
   
32.1 Certification of John Thatch pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
   
32.2 Certification of Frank A. Walters pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
   
101 The following financial information from our Quarterly Report on Form 10-Q for the three months ended OctoberJanuary 31, 20192020 and 2018,2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Cash Flows; (iv) Condensed Consolidated Statements of Stockholders’ Equity (Deficit) and (v) Notes to Condensed Consolidated Notes to Financial Statements *
 

* Included herewith

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:December 16, 2019 March 12, 2020  
By:/s/ John Thatch
 John Thatch
 President, Chief Executive Officer and Director
 (Principal Executive Officer)
   
Date:December 16, 2019 March 12, 2020                                
By:/s/ Frank A. Walters
 Frank A. Walters
 Secretary and Chief Financial Officer
 (Principal Financial Officer)

35