UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

 

For the quarterly period ended: June 30, 20212022

 

or

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

 

Commission File Number 000-55997

 

SHARING SERVICES GLOBAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada 30-0869786
(State or other jurisdiction
of incorporation or organization)		 (I.R.S. Employer
Identification No.)

1700 Coit Road, Suite 100290, Plano, Texas 75075
 (Address(Address of principal executive offices) (Zip Code)

(469(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:

 

Title of each class Trading Symbol(s) Name of each exchange in which registered
N/A N/A N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☒ 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☒
   Emerging growth company☒☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

As of August 6, 2021,12, 2022, there were 187,610,769262,832,833 shares of the issuer’s Class A Common Stock outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION 
Item 1. Financial Statements4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations2024
Item 3. Quantitative and Qualitative Disclosures About Market Risk2631
Item 4. Controls and Procedures2631
  
PART II—OTHER INFORMATION 
Item 1. Legal Proceedings2732
Item 1A. Risk Factors2732
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds2732
Item 3. Defaults Upon Senior Securities2732
Item 4. Mine Safety Disclosures2732
Item 5. Other Information2732
Item 6. Exhibits2833

 

2

 

In its fiscal year 2021, the Company changed its fiscal year-end from a fiscal year ending on April 30 to a fiscal year ending on March 31. In31st in this Quarterly Report, references to “the Company,” “Sharing Services,” “our company,” “we,” “our,” “ours”“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, or which depend upon future events, may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “potential,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “will likely,” “would,” or the negative of such words and/or similar expressions. However, not all forward-looking statements contain these words.

 

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

 

3

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

The following unaudited financial statements: condensed consolidated balance sheets as of June 30, 2021, and March 31, 2021, and the2022, condensed consolidated statements of operations and comprehensive income (loss), condensed consolidated statements of cash flows, and condensed consolidated statements of changes in stockholders’ equity for the three months ended June 30, 2021,2022 and July 31, 2020,2021, are those of Sharing Services Global Corporation and its subsidiaries.

 

Index to Unaudited Condensed Consolidated Financial Statements

 

 Page
  
Condensed consolidated balance sheets as of June 30, 2021,2022, and March 31, 202120225
  
Condensed consolidated statements of earnings (loss)operations and comprehensive income (loss)loss for the three months ended June 30, 2021,2022, and July 31, 2020June 30, 20216
  
Condensed consolidated statements of cash flows for the three months ended June 30, 2021,2022, and July 31, 2020June 30, 20217
  
Condensed consolidated statements of changes in stockholders’ equity for the three months ended June 30, 2021,2022, and July 31, 2020June 30, 20218
  
Notes to the unaudited condensed consolidated financial statements9

4

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  June 30, 2021  March 31, 2021 
ASSETS        
Current Assets        
Cash and cash equivalents $35,918,667  $12,144,409 
Trade accounts receivable, net  1,510,153   1,514,359 
Income taxes receivable  1,011,797   1,011,740 
Notes receivable, net  84,529   94,600 
Inventory, net  5,825,361   2,471,310 
Other current assets  3,573,308   2,403,634 
Total Current Assets  47,923,815   19,640,052 
Property and equipment, net  1,060,468   887,950 
Right-of-use assets, net  288,268   428,075 
Deferred income taxes, net  -   1,873,170 
Intangible assets  796,182   188,567 
Other assets  188,883   219,142 
TOTAL ASSETS $50,257,616  $23,236,956 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities        
Accounts payable $2,263,780  $1,295,174 
Accrued sales commission payable  3,856,998   4,713,777 
Employee stock warrants liability  1,920,629   3,132,161 
Note payable  -   1,040,400 
Accrued and other current liabilities  4,785,225   5,876,131 
Current portion of convertible notes payable, net of unamortized debt discount of $0 at June 30 and $369 at March 31  100,000   99,631 
Total Current Liabilities  12,926,632   16,157,274 
Deferred income taxes, net  4,517,050   - 
Convertible notes payable, net of unamortized debt discount of $27,659,101 and deferred financing costs of $2,764,599 at June 30 and unamortized debt discount of $15,238 at March 31  2,390,899   34,762 
Settlement liability, long term portion  539,522   808,071 
Lease liability, long-term  52,399   77,810 
TOTAL LIABILITIES  20,426,502   17,077,917 
Commitments and contingencies        
Stockholders’ Equity        
Preferred stock, $0.0001 par value, 200,000,000 shares authorized:        
Series A convertible preferred stock, $0.0001 par value, 100,000,000 shares designated, 5,100,000 shares issued and outstanding at both June 30 and March 31  510   510 
Series B convertible preferred stock, $0.0001 par value, 10,000,000 shares designated, 0 shares issued and outstanding at June 30 and March 31  -   - 
Series C convertible preferred stock, $0.0001 par value, 10,000,000 shares designated, 3,220,000 shares and 3,230,000 shares issued and outstanding at June 30 and March 31, respectively  322   323 
Preferred stock value        
Common Stock, $0.0001 par value, 500,000,000 Class A shares authorized, 187,110,769 and 160,100,769 shares issued and outstanding at June 30 and March 31, respectively  18,711   16,010 
Common Stock, $0.0001 par value, 10,000,000 Class B shares authorized, 0 shares issued and outstanding at June 30 and March 31  -   - 
Common stock value        
Additional paid in capital  71,845,068   43,757,768 
Shares to be issued  12,146   12,146 
Accumulated deficit  (42,077,846)  (37,627,718)
Cumulative translation adjustments  32,203   - 
Total Stockholders’ Equity  29,831,114   6,159,039 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $50,257,616  $23,236,956 

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

5

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

         
  Three Months Ended 
  June 30, 2021  July 31, 2020 
Net sales $11,211,526  $21,889,160 
Cost of goods sold  3,353,810   5,889,026 
Gross profit  7,857,716   16,000,134 
Operating expenses        
Selling and marketing expenses  5,150,475   9,601,832 
General and administrative expenses  4,728,310   6,369,270 
Total operating expenses  9,878,785   15,971,102 
Operating earnings (loss)  (2,021,069)  29,032 
Other income (expense)        
Interest expense, net  (2,930,014)  (9,127)
Litigation settlements and other non-operating  (23,605)  (78,822)
Gain (loss) on employee warrants liability  1,134,170   (1,123,500)
Gain on extinguishment of debt  1,040,400   - 
Total other income (expense), net  (779,049)  (1,211,449)
Loss before income taxes  (2,800,118)  (1,182,417)
Income tax (benefit) provision  747,889   (133,717)
Net loss $(3,548,007) $(1,048,700)
Other Comprehensive Income/Loss (net of tax):        
Currency translation adjustments  32,203   - 
Total other comprehensive income  32,203   - 
Comprehensive loss $(3,515,804) $(1,048,700)
Earnings (loss) per share:        
Basic $(0.02) $(0.01)
Diluted $(0.02) $(0.01)
Weighted average shares:        
Basic  184,435,274   140,202,821 
Diluted  184,435,274   140,202,821 
   June 30, 2022   March 31, 2022 
  (Unaudited)    
ASSETS       
Current Assets        
Cash and cash equivalents $14,453,492  $17,023,266 
Trade accounts receivable, net  1,889,118   1,682,958 
Income taxes receivable  -   300,000 
Inventory, net  4,132,781   4,374,236 
Other current assets, net  2,428,486   3,511,282 
Total Current Assets  22,903,877   26,891,742 
Property and equipment, net  9,586,821   9,585,141 
Right-of-use assets, net  527,492   593,389 
Deferred income taxes, net  81,205   81,205 
Investment in unconsolidated entities, net  9,929,294   5,063,940 
Intangible assets  652,761   688,670 
Other assets, net  170,597   260,637 
TOTAL ASSETS $43,852,047  $43,164,724 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities        
Accounts payable $575,000  $985,139 
Accrued sales commission payable  3,247,913   3,745,481 
Employee stock warrants liability  344,463   452,050 
State and local taxes payable  1,381,888   1,339,366 
Note payable, related party  5,687,500   - 
Accrued and other current liabilities  2,669,096   3,079,782 
Convertible notes payable, related parties, net of unamortized debt discount and unamortized deferred loan cost of 20,033,135 and 20,151,230 as of June 30, 2022, and March 31, 2022, respectively.  7,016,865   9,898,770 
Total Current Liabilities  20,922,725   19,500,588 
Deferred income tax liability, net  550,780   - 
Settlement liability, long term portion  -   373,677 
Lease liability, long-term  461,515   461,515 
TOTAL LIABILITIES  21,935,020   20,335,780 
Commitments and contingencies  -      
Stockholders’ Equity        
Preferred stock, $0.0001 par value, 200,000,000 shares authorized:        
Series A convertible preferred stock, $0.0001 par value, 100,000,000 shares designated, 3,100,000 shares issued and outstanding as of June 30, 2022, and March 31, 2022, respectively  310   310 
Series B convertible preferred stock, $0.0001 par value, 10,000,000 shares designated, 0 shares issued and outstanding at June 30 and March 31  -   - 
Series C convertible preferred stock, $0.0001 par value, 10,000,000 shares designated, 3,220,000 shares and 3,220,000 shares issued and outstanding at June 30 and March 31, 2022, respectively  322   322 
Preferred stock, value  322   322 
Common Stock, $0.0001 par value, 800,000,000 shares authorized:        
Class A common stock, $0.0001 par value, 790,000,000 shares designated, 288,923,969 shares and 288,923,969 shares issued and outstanding at June 30 and March 31, 2022, respectively  28,892   28,892 
Class B common stock, $0.0001 par value, 10,000,000 shares designated, 0 shares issued and outstanding  -   - 
Common stock value  -   - 
Treasury Stock, 26,091,136 shares, at cost  (626,187)  - 
Additional paid in capital  81,950,266   80,738,719 
Shares to be issued  12,146   12,146 
Accumulated deficit  (59,239,346)  (57,886,336)
Accumulated other comprehensive loss  (209,376)  (65,109)
Total Stockholders’ Equity  21,917,027   22,828,944 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $43,852,047  $43,164,724 

 

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

5

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

         
  Three Months Ended 
  June 30, 2022  June 30, 2021 
Net sales $5,303,618  $11,211,526 
Cost of goods sold  1,657,028   3,353,810 
Gross profit  3,646,590   7,857,716 
Operating expenses        
Selling and marketing expenses  2,757,800   5,150,475 
General and administrative expenses  4,550,903   4,728,310 
Total operating expenses  7,308,703   9,878,785 
Operating loss  (3,662,113)  (2,021,069)
Other income (expense)        
Interest expense, net  (3,120,054)  (2,930,014)
Litigation settlements and other  69,229   (23,605)
Unrealized gain on investments  4,884,173     
Gain (loss) on employee warrants liability  114,960   1,134,170 
Gain on extinguishment of debt  -   1,040,400 
Other non-operating expense  20,938   - 
Total other income (expense), net  1,969,246   (779,049)
Loss before income taxes  (1,692,867)  (2,800,118)
Income tax (benefit) provision  (339,857)  747,889 
Net loss $(1,353,010) $(3,548,007)
Other Comprehensive Income/Loss (net of tax):        
Currency translation adjustments  (144,267)  32,203 
Total other comprehensive income (loss)  (144,267)  32,203 
Comprehensive loss $(1,497,277) $(3,515,804)
Net income (loss) per share:        
Basic $(0.01) $(0.02)
Diluted $(0.00) $(0.02)
Weighted average shares:        
Basic  278,315,485   184,435,274 
Diluted  278,315,485   184,435,274 

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

6

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

         
  Three Months Ended 
 June 30, 2021  July 31, 2020 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss $(3,548,007) $(1,048,700)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  87,114   42,217 
Stock-based compensation expense (gain)  (931,533)  2,650,467 
Deferred income tax benefit  (717,960)  (567,777)
Amortization of debt discount and other  2,356,507   25,121 
Gain on extinguishment of debt  (1,040,400)  - 
Provision for obsolete inventory  116,334   - 
Changes in operating assets and liabilities:        
Accounts receivable  4,755   43,588 
Inventory  (3,450,228)  (185,639)
Other current assets  730,387   (714,713)
Other assets  (89,935)  - 
Accounts payable  959,990   51,281 
Income taxes payable  1,446,896   316,074 
Lease liability  1,621   1,638 
Accrued and other liabilities  (1,942,929)  (4,318,040)
Net Cash Used in Operating Activities  (6,017,388)  (3,704,483)
CASH FLOWS FROM INVESTING ACTIVITIES:        
Payments for property and equipment  (244,728)  (61,046)
Collection of notes receivable  10,070   48,698 
Due to related parties and other  -   (8,400)
Net Cash Used in Investing Activities  (234,658)  (20,748)
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from issuance of common stock  -   3,000,000 
Proceeds from issuance of promissory notes  30,000,000   1,040,400 
Repayment of promissory notes payable  -   - 
Net Cash Provided by Financing Activities  30,000,000   4,040,400 
IMPACT OF CURRENCY RATE CHANGES ON CASH  26,304   - 
Increase in cash and cash equivalents  23,774,258   315,169 
Cash and cash equivalents, beginning of period  12,144,409   11,742,728 
Cash and cash equivalents, end of period $35,918,667  $12,057,897 
         
Supplemental cash flow information        
Cash paid for interest $14,442  $3,687 
Cash paid for income taxes $-  $4,398 
Supplemented disclosure of non-cash investing and financing activities:        
Stock issued for financing fees and prepaid interest on debt $5,400,000  $- 
Settlement obligation satisfied with shares of common stock $-  $400,000 

         
  Three Months Ended 
  June 30, 2022  June 30, 2021 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss $(1,353,010) $(3,548,007)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  171,035   87,114 
Stock-based compensation gain  (107,588)  (931,533)
Deferred income tax benefit  -   (717,960)
Amortization of debt discount and other  3,412,427   2,356,507 
Gain on extinguishment of debt  (324,230)  (1,040,400)
Unrealized gain on investments  (4,884,173)  - 
Provision for obsolete inventory  108,055  116,334 
Changes in operating assets and liabilities:        
Accounts receivable  (206,163)  4,755 
Inventory  (111)  (3,450,228)
Other current assets  298,812  730,387 
Other assets  (19,950)  (89,935)
Accounts payable  374,997  959,990 
Income taxes payable  (30,259)  1,446,896 
Lease liability  4,162   1,621 
Accrued and other liabilities  (1,220,512)  (1,942,929)
Net Cash Used in Operating Activities  (3,776,508)  (6,017,388)
CASH FLOWS FROM INVESTING ACTIVITIES:        
Payments for property and equipment  (136,807)  (244,728)
Collection of notes receivable      10,070 
Net Cash Used in Investing Activities  (136,807)  (234,658)
CASH FLOWS FROM FINANCING ACTIVITIES:        
Retirement of loan  (3,270,174)  - 
Proceeds from issuance of promissory notes  5,687,500   - 
Common stock received on litigation settlement  (1,043,645)  - 
Proceeds from convertible notes  -   30,000,000 
Net Cash Provided by Financing Activities  1,373,681  30,000,000 
IMPACT OF CURRENCY RATE CHANGES ON CASH  (30,140)  26,304 
Increase (decrease) in cash and cash equivalents  (2,569,774)  23,774,258 
Cash and cash equivalents, beginning of period  17,023,266   12,144,409 
Cash and cash equivalents, end of period $14,453,492  $35,918,667 
         
Supplemental cash flow information        
Cash paid for interest $481,043  $14,442 
Cash paid for income taxes $-  $- 
Supplemented disclosure of non-cash investing and financing activities:        
Stock issued for financing fees and prepaid interest on debt $-  $5,400,000 

 

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

 

7

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

                                                         
  Series A Preferred Stock  Series B Preferred Stock  Series C Preferred Stock  Class A and Class B Common Stock                    
  Number of Shares  Par Value  Number of Shares  Par Value  Number of Shares  Par Value  Number of Shares  Par Value  Additional Paid in Capital Subscription Receivable Shares to be IssuedTreasury Stock Accumulated Deficit  Cumulative Translation Adjustments  Total 
Balance – March 31, 2021  5,100,000  $510   -  $-   3,230,000  $323   160,100,769  $16,010  $43,757,768 $                  - $12,146 $               - $(37,627,718) $-  $6,159,039 
Common stock issued for deferred financing costs and prepaid interest on debt  -   -   -   -   -   -   27,000,000   2,700   6,477,300     -  -  (1,080,000)  -   5,400,000 
Conversions of preferred stock          -   -   (10,000)  (1)  10,000   1   -     -     -   -   - 
Issuance of debt with beneficial conversion feature and in-the-money stock warrant, net of tax  -   -   -   -   -   -   -   -   21,330,000     -     -   -   21,330,000 
Expiration of common stock puts  -   -   -   -   -   -   -   -   -     -     177,879   -   177,879 
Stock-based compensation expense  -   -   -   -   -   -   -   -   280,000     -     -   -   280,000 
Currency translation adjustments  -   -   -   -   -   -   -   -   -     -     -   32,203   32,203 
Common stock issued for cash                                                        
Common stock issued for cash, shares                                                        
Common stock issued upon settlement of litigation                                                        
Common stock issued upon settlement of litigation, shares                                                        
Preferred stock retired                                                        
Preferred stock retired, shares                                                        
Stock warrants exercised                                                        
Net earnings (loss)  -   -   -   -   -   -   -   -   -  -  -  -  (3,548,007)  -   (3,548,007)
Balance – June 30, 2021  5,100,000  $510   -  $-   3,220,000  $322   187,110,769  $18,711  $71,845,068 $- $12,146 $- $(42,077,846) $32,203  $29,831,114 

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

Other

    
  of  Par  of  Par  of  Par  of  Par  Paid in  to be  Treasury  Accumulated  Comprehensive   
  Shares  Value  Shares  Value  Shares  Value  Shares  Value  Capital  Issued  Stock  Deficit  

Loss

  Total 
Balance – March 31, 2022  3,100,000  $310      -  $-   3,220,000  $322   288,923,969  $28,892  $80,738,719  $12,146  $-  (57,886,336) $(65,109)-$22,828,944 
Refinancing of debt and detachable warrants  -   -   -   -   -   -   -   -   1,211,547   -       -   -   1,211,547 
Repurchase of 26,091,136 shares of Common Stock                          

 

   

 

   

 

       (626,187)          (626,187)
Currency translation adjustments  -   -   -   -   -   -   -   -   -   -       -   (144,267)  (144,267)
Net loss  -   -   -   -   -   -   -   -   -   -       (1,353,010)      (1,353,010)
Balance – June 30, 2022  3,100,000  $310   -  $-   3,220,000  $322   288,923,969  $28,892  $81,950,266  $12,146   (626,187)  (59,239,346) $(209,376)-$21,917,027 

                                             
  

Series A

Preferred Stock

  

Series B

Preferred Stock

  Series C Preferred Stock  Class A and Class B Common Stock                     

 

 

  

Number of Shares

  Par Value  

Number of Shares 

  Par Value  

Number of Shares

  Par Value  

Number of Shares 

  Par Value  

Additional Paid in Capital

  

Subscription Receivable

  

Shares to be Issued

  

Treasury Stock

  

Accumulated Deficit

  Cumulative Translation Adjustments  Total 
Balance – April 30, 2020  32,478,750  $3,248   10,000,000  $1,000   3,490,000  $349   136,072,386  $13,607  $38,871,057  $(114,405) $11,785  $(1,532,355) $(33,992,697) $           -  $3,261,589 
Common stock issued for cash  -   -   -   -   -   -   30,000,000   3,000   2,997,000   -   -   -    -       3,000,000 
Common stock issued upon settlement of litigation  -   -   -   -   -   -   10,000,000   1,000   399,000   -   -   -    -       400,000 
Preferred stock retired  (5,628,750)  (563)  -   -   -   -   -   -   563   -   -       -       - 
Stock warrants exercised  -   -   -   -   -   -   -   -   -   -   -   -   -       - 
Net earnings  -   -   -   -   -   -   -   -   -   -   -       (1,048,700)  -   (1,048,700)
Balance – July 31, 2020  26,850,000  $2,685   10,000,000  $1,000   3,490,000  $349   176,072,386  $17,607  $42,267,620  $(114,405) $11,785  $(1,532,355) $(35,041,397) $-  $5,612,889 

 

                                                     
  Series A
Preferred Stock		  Series B Preferred Stock  Series C
Preferred Stock		  Class A and Class B Common Stock        Accumulated    
  Number     Number     Number     Number     Additional  Shares     Other    
  of  Par  of  Par  of  Par  of  Par  Paid in  to be  Accumulated  Comprehensive    
  Shares  Value  Shares  Value  Shares  Value  Shares  Value  Capital  Issued  Deficit  Loss  Total 
Balance – March 31, 2021  5,100,000  $510   -  $-   3,230,000  $323   160,100,769  $16,010  $43,757,768  $12,146 - $(37,627,718)- $-  $6,159,039 
Beginning balance, value  5,100,000  510   -  -   3,230,000  323   160,100,769  16,010  $43,757,768  12,146 - (37,627,718)- -  6,159,039 
Common stock issued for deferred financing costs and prepaid interest on debt  -   -   -   -   -   -   27,000,000   2,700   6,477,300   - -  (1,080,000) - -   5,400,000 
Conversions of preferred stock          -   -   (10,000)  (1)  10,000   1   -   -   -   -   - 
Issuance of debt with beneficial conversion feature and in-the-money stock warrant, net of tax  -   -   -   -   -   -   -   -   21,330,000   -   -   -   21,330,000 
Expiration of common stock puts  -   -   -   -   -   -   -   -   -   -   177,879   -   177,879 
Stock-based compensation expense  -   -   -   -   -   -   -   -   280,000   -   -   -   280,000 
Currency translation adjustments  -   -   -   -   -   -   -   -   -   -   -   32,203   32,203 
Net loss  -   -   -   -   -   -   -   -   -   -   (3,548,007)  -   (3,548,007)
Balance – June 30, 2021  5,100,000  $510   -  $-   3,220,000  $322   187,110,769  $18,711  $71,845,068  $12,146  -$(42,077,846) -$32,203  $29,831,114 
Ending balance, value  5,100,000  $510   -  -   3,220,000  $322   187,110,769  $18,711  $71,845,068  $12,146  -$(42,077,846) -$32,203  $29,831,114 

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

8

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 –DESCRIPTION OF OPERATIONSORGANIZATION AND BASIS OF PRESENTATIONBUSINESS

 

Description of Operations

Sharing Services Global Corporation and subsidiaries (“Sharing Services”,Services,” “we,” or the “Company”) is a publicly traded company that aimsaim to build shareholder value by developing or acquiring businesses that augment the Company’s product and services portfolio, business competencies, and geographic reach.

 

The Company is an emerging growth company and was incorporated in the State of Nevada in April 2015. In its fiscal year 2021, the Company changed its fiscal year-end from a fiscal year ending on April 30 to a fiscal year ending on March 31. The Company has decided not to restate the information reported for prior accounting periods, because: (a) the Company’s business is not inherently seasonal, (b) the change in fiscal years did not materially distort comparability of the Company’s results of operations and cash flows, and (c) the cost to restate the data reported for prior periods outweighs the usefulness of such restated data. Accordingly, the condensed consolidated financial statements included herein reflect the results of operations and cash flows for the three months ended June 30, 2021 (91 days) compared to the three months ended July 31, 2020 (92 days).

 

Health and Wellness Products - The Company’s subsidiaries operating in the health and wellness products industry, which accounted for substantially all the Company’s consolidated net sales during the periods included in this Quarterly Report, market their products primarily through an independent sales force, using a direct selling business model under the proprietary brand “The Happy Co.” Currently, the CompanyThe Happy Co.TM markets and distributes its health and wellness and other products primarily in the United States, Canada, the Republic of Korea, and other countries in the Asia Pacific region. The Company does not currently operate retail stores.In addition, certain of the Company’s domestic subsidiaries market its health and wellness products on a “not-for-resale” basis to consumers in other countries outside the U.S.

Subscription-Based Travel Services - Through its subsidiaries,subsidiary, Hapi Travel Destinations, the Company currently marketsis preparing to launch a subscription-based travel services business under the proprietary brand “Hapi Travel.” The Hapi TravelTM services are designed to offer the opportunity to travel to destinations in the U.S. and abroad to people of all ages, demographics, and economic backgrounds. Hapi TravelTM will also provide entrepreneurial opportunities to its productssubscribers by capitalizing on both the direct selling model and services through an independent sales force, using a direct sellingthe retail travel business model.

 

Company-Owned and Franchised Destination Cafes – Sharing Services recently entered into a Letter of Intent (the “LOI”) to acquire the exclusive franchise rights in North America to the brand “Hapi Café” from Hapi Café, Inc., a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, subject to formalization of a Master Franchise Agreement. Under the proposed terms, Sharing Services, directly or through its subsidiaries, will operate no less than five (5) corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the LOI and the ultimate Master Franchise Agreement. Each corporate-owned or franchised Hapi CaféTM store will offer to customers and Brand Partners seeking a healthier lifestyle: (a) a selection of functional and healthy food and beverages, (b) a pleasant workspace with free Wi-Fi service, (c) extensive physical fitness, nutrition management and personal workout print and video content, and (d) our Hapi TravelTM subsidiary’s proprietary travel services.

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

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

 

The unaudited 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 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 TransitionAnnual Report on Form 10-K for the transition periodfiscal year ended March 31, 2021.2022. Unless so stated, the disclosures in the accompanying condensed consolidated financial statements do not repeal the disclosures in our consolidated financial statements for the transition periodyear ended March 31, 2021.2022.

 

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During the 11-month transition period ended March 31, 2021, and the three months ended June 30, 2021, the Company’s net loss was $1,235,021 and $3,548,007, respectively. During the 11-month transition period ended March 31, 2021, and the three months ended June 30, 2021, the Company’s cash used in operating activities was $1,566,970 and $6,017,388, respectively. As of June 30, 2021, cash and cash equivalents are $35,918,667. The Company anticipates continuing to use operating cash due to: (i) a sustained reduction in sales; (ii) investments in new markets, new lines of business, and new products, and (iii) costs associated with the due diligence of purchasing strategic assets and companies. The Company believes that funds from the $30 million convertible loan received from Decentralized Sharing Systems, Inc. on April 5, 2021 (see Note 4), provides the Company with sufficient liquidity to sustain the Company’s plans and operations at current levels over the next twelve months.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Reclassifications

Certain reclassifications have been made to the prior year data to conform to the current period’s presentation, primarily consisting, as of March 31, 2021, reclassification of the liability associated with uncertain tax positions of $904,643 and, for the three months ended July 31, 2020, reclassification of the gain on employee warrants liability of $1,123,500.

Correction of Errors

In the three months ended January 31, 2021, the Company identified two errors in amounts previously reported in its Quarterly Report on Form 10-Q for the interim periods ended July 31, 2020, concerning the method used to capitalize work-in-progress for projects and errors in its stock-based compensation expense related to employment contracts.

9

Accordingly, in the three months ended January 31, 2021, the Company made the following corrections to previously reported amounts:

Capitalization of Costs for Ongoing Projects and Development of a New Business Brand. - In the three months ended January 31, 2021, the Company capitalized costs incurred in connection with ongoing upgrades to its information technology systems, the development of the new business brand “The Happy Co” and office renovations, in the aggregate, of $816,116. Of the amount capitalized, $58,038 (before tax) should have been capitalized in the quarter ended July 31, 2020.

Stock-based Compensation Expense - In the three months ended January 31, 2021, the Company conducted a detailed review of the terms and conditions of stock warrants awarded to its employees in connection with employment agreements. As a result of this review, the Company concluded that stock-based compensation expense reported in the quarter ended July 31, 2020, was understated, before income taxes, by $5,587.

The impact on our previously reported Net Earnings for the affected period indicated is:

Schedule of Previously Reported Net Earnings

  

Three Months Ended

July 31, 2020

 
Net Earnings/(Loss) – As Reported $(1,093,377)
Adjustments (net of tax):    
Capitalized Projects  50,264 
Warrant Benefit / (Expense)  (5,587)
Total Adjustments (net of tax)  44,677 
Net Earnings/(Loss) – As Corrected $(1,048,700)

The Company has identified the impacted internal controls for both errors and has implemented additional internal controls in order to identify and mitigate in the future.

Use of Estimates and Assumptions

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

 

Cash and Cash Equivalents and Restricted Cash

 

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company includes in its cashCash and cash equivalents credit card receivables due from itsinclude recent customer remittances deposited with our merchant processors at the balance sheet date, which are expected to be settledgenerally settle within 24 to 72 hours. AtAs of June 30, 2021,2022, and March 31, 2021, credit card receivables were2022, cash and cash equivalents included cash held by our merchant processors of $4,260,3801.2 million and $6,225,1393.3, respectively. million, respectively, including $1.1 million and $3.0 million, respectively held by one merchant processor. In addition, as of June 30, 2021,2022, and March 31, 2021,2022, cash and cash equivalents held in bank accounts in foreign countries in the ordinary course of our business were $4,416,1791.0 million and $1,612,0261.4, million, respectively. Amounts held by our merchant processorsprocessor or held in bank accounts located in foreign countries are generally not insured by any federal agency.

 

InventoryNotes Receivable, net

At June 30, 2022 and March 31, 2022, Notes receivable were $539,623 and $601,520, before allowance for impairment losses of $539,623 and $601,520, respectively.

Inventory

Inventory consists of finished goods and promotional materials and are stated at the lower of cost, determined using the first-in, first-out (“FIFO”) method, or net realizable value. The Company periodically assesses its inventory levels when compared to current and anticipated sales levels. During the three months endedAs of June 30, 2021,2022, and JulyMarch 31, 2020, 2022,the Company recognized a provisionallowance for excess (slow-moving) or obsolete inventory ofwas $116,334108,055 and ni108,055l, respectively, in connection with health and wellness product that is damaged, expired or otherwise in excess of forecasted outputs, based on our current and anticipated sales levels. The Company reports its provisions for inventory losses in cost of goods sold in its consolidated statements of operations.

10

Other Current Assets

As of June 30, 2021, and March 31, 2021, other current assets were $3,573,308 and $2,403,634, respectively. These amounts primarily consisted of inventory-related deposits of $971,619 and $1,845,722, employee advances of $233,155 and $320,631, and prepaid freight and other expenses of $534,013 and $210,665, as of June 30, 2021, and March 31, 2021, respectively. In addition, as of June 30, 2021, these amounts included prepaid interest related to the DSSI loan of $1,834,521 (see Note 7 below).

Accrued and Other Current Liabilities

As of June 30, 2021, and March 31, 2021, accrued and other current liabilities were $4,785,225 and $5,876,131, respectively. These amounts consisted of deferred sales revenues of $971,917 and $1,449,359, state and local taxes payable of $927,178 and $1,048,717, liability associated with uncertain tax positions of $921,977 and $904,643, accrued severance expense of $25,000 and $700,000, payroll and employee benefits of $722,904 and $523,454, current portion of settlement liability of $363,008 and $376,921, current portion of lease liability of $260,623 and $373,398 and other operational accruals of $592,618 and $499,639, respectively.

Note Payable

 

Note Payable

In May 2020, the Company was granted a loan (the “PPP Loan”) by a commercial bank in the amount of $1.0million, pursuant to the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”).

At March 31, 2021, loan principal in the amount of $1.0million was outstanding. The Company’s borrowings under the PPP Loan were eligible for loan forgiveness under the provisions of the CARES Act. In June 2021, the Company was formally notified by the lender that the Company’s obligations under the loan have been forgiven effective May 25, 2021. The loan forgiveness applies to all principal and interest accrued through the loan forgiveness effective date. The Company recognized a gain on extinguishment of debt of $1.0million in connection with such loan forgiveness.

 

On June 15, 2022, Linden Real Estate Holdings, LLC, a wholly owned subsidiary of the Company, American Pacific Bancorp, Inc. (“APB”), and the Company entered into a Loan Agreement pursuant to which APB loaned the Company approximately $Foreign Currency Translation5.7 million. The loan bears interest at the annual rate of 8%, matures on June 1, 2024, and is secured by a first mortgage interest on the Company’s Lindon, Utah office building. In connection with this loan, the Company received net proceeds of $5,522,829 from APB on June 17, 2022. APB is a subsidiary of DSS, Inc. Heng Fai Ambrose Chan, and Frank D. Heuszel, each a Director of the Company, also serve on the Board of Directors of APB. Monthly payments of principal and interest in the amount of $43,897 are due beginning July 1, 2022 and are payable on the same date of each month thereafter.

10

 

Foreign Currency Translation

Prior to April 1, 2021, substantially all ourthe Company’s consolidated net sales were denominated in U.S. dollars. As part of our growth initiatives, we are in the process of expanding operations outside the United States. The functional currency of each of our foreign operations is generally the respective local currency. Balance sheet accounts are translated into U.S. dollars (our reporting currency) at the rates of exchange in effect at the balance sheet date, while the results of operations and cash flows are generally translated using average exchange rates for the periods presented. IndividuallyIndividual material transactions, if any, are translated using the actual rate of exchange on the transaction date. The resulting translation adjustments are reported in cumulative translation adjustmentsaccumulated other comprehensive loss in our condensed consolidated balance sheets.

 

Comprehensive Income (Loss)

 

For the three months ended June 30, 2021,2022, the Company’s comprehensive incomeloss was comprised of currency translation adjustments and net earnings (loss).loss. Prior to April 1, 2021, the only component of the Company’s comprehensive income (loss) was its net earnings (loss).

Revenue Recognition

Revenue Recognition

As of June 30, 2021,2022, and March 31, 2021,2022, deferred sales revenue associated with product invoiced but not received by customers at the balance sheet date was $779,844195,282 and $1.2344,071 million,, respectively. In addition, as of June 30, 2021,2022, and March 31, 2021,2022, deferred sales revenue associated with our unfulfilled performance obligations for services offered on a subscription basis was $121,79865,318, and $153,21670,968, and deferred sales revenue associated with our performance obligations for customers’ right of return was $70,27563,046 and $95,78063,890, and deferred revenues associated with customer loyalty points was $81,980 and $68,287, respectively. Deferred sales revenue is expected to be recognized over one year.

 

During the three months ended June 30, 2022, no individual customer, or affiliated group of customers, represented 10% or more of our consolidated net sales, and approximately 63% of our net sales were to customers (including 37% to recurring customers, which we refer to as “SmartShip” sales, and approximately 26% to new customers) and approximately 37% of our net sales were to our independent distributors. During the three months ended June 30, 2021, no individual customer, or affiliated group of customers, represents 10%10% or more of our consolidated net sales, and approximately 70% of our net sales were to customers (including 31% to recurring customers which we refer to as “SmartShip” sales, and approximately 39% to new customers) and approximately 30% of our net sales were to our independent distributors. During the three months ended June 30, 2021,2022, and July 31, 2020,June 30, 2021, approximately 8993% and 9389%, respectively, of our consolidated net sales were to our customers and/or independent distributors located in the United States. No other country accounted for 10%10% or more of our consolidated net sales.

11

During the three months ended June 30, 2022, substantially all our consolidated net sales are from our health and wellness products (including approximately 70% from the sale of Nutraceutical products, 20% from the sale of coffee and other functional beverages, 9% from the sale of weight management products, and approximately 1% from the sale of all other health and wellness products). During the three months ended June 30, 2021, substantially all our consolidated net sales are from our health and wellness products (including approximately 42% from the sale of Nutraceutical products, 27% from the sale of coffee and other functional beverages, 12% from the sale of weight management products, and approximately 19% from the sale of all other health and wellness products). 

During the three months ended July 31, 2020,June 30, 2022, approximately 9894% of our consolidated net sales areproduct purchases were from a third-party manufacturer based in the sale of our health and wellness products (including 60% from the sale of Nutraceutical products, 27% from the sales of coffee and other functional beverages, and 11% from the sale of all other health and wellness products).

U.S. During the three months ended June 30, 2021, approximately 49% of our consolidated product purchases were from a third-party manufacturer based in the U.S., while 51% of our product purchases were from a related-party supplier located in the Republic of Korea. During the three months ended July 31, 2020, product purchases from one third-party manufacturer (the same U.S.-based supplier discussed in the preceding sentence) accounted for approximately

98% of our total product purchases.

 

Sales Commissions

The Company recognizes sales commission expense, when incurred, in accordance with GAAP. During the three months ended June 30, 2021,2022 and July 31, 2020,2021, sales commission expense, which is included in selling and marketing expenses in our consolidated statements of earningsoperations and comprehensive income,loss, was $5.02.4 million and $9.45.0 million, respectively.

 

Recently Issued Accounting Standards - Recently Adopted

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

 

Recently Issued Accounting Standards - Pending Adoption

 

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

 

11

NOTE 2 – INVENTORY

 

Inventories consist of finished goods and promotional materials. The Company provides an allowance for any slow-moving or obsolete inventory. As of June 30, 2021, and March 31, 2021, inventory consists of the following:

SCHEDULE OF INVENTORY

  June 30, 2021  March 31, 2021 
Finished Goods $6,026,753  $2,556,368 
Allowance for inventory obsolescence  (201,392)  (85,058)
 Inventory, net $5,825,361  $2,471,310 

The increase in finished goods for the quarter, compared to as of March 31, 2021, is primarily due to the acquisition of product related to our South Korean operations, which stated selling product in June 2021.

12

NOTE 3 – EARNINGS (LOSS)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 shares issuable upon the conversion or exercise of outstanding convertible preferred stock, convertible notes payable, stock warrants and other commitments to issue common stock, except where the impact would be anti-dilutive.

 

The calculation of diluted earnings per share also reflects an adjustment to net earnings for the potential reduction to a reporting period’s interest expense, net of applicable income tax, which would result if the Company’s convertible notes payable were converted at the beginning of such reporting period.

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


SCHEDULE OF COMPUTATIONS OF BASIC AND DILUTED EARNINGSLOSS PER SHARE

 June 30, 2021  July 31, 2020  June 30, 2022  June 30, 2021 
 Three Months Ended July 31,  Three Months Ended 
 June 30, 2021  July 31, 2020  June 30, 2022  June 30, 2021 
Net loss $(3,548,007) $(1,048,700) $(1,353,010) $(3,548,007)
Weighted average basic shares  184,435,274   140,202,821   278,315,485   184,435,274 
Weighted average diluted shares  184,435,274   140,202,821   278,315,485   184,435,274 
Loss per share:                
Basic $(0.02) $(0.01) $(0.01) $(0.02)
Diluted $(0.02) $(0.01) $(0.00) $(0.02)

 

The following potentially dilutive securities and instruments were outstanding as of June 30, 2021,2022, and July 31, 2020,June 30, 2021, but excluded from the table above because their impact would be anti-dilutive:above:

SCHEDULE OF POTENTIALLY DILUTIVE INSTRUMENTS OUTSTANDING

 June 30, 2021  July 31, 2020  June 30, 2022  June 30, 2021 
Convertible preferred stock  8,325,165   44,133,288   6,320,000   8,325,165 
Convertible notes payable  152,231,082   10,406,100   135,377,975   152,231,082 
Stock warrants  168,295,815   27,695,037   -   168,295,815 
Total potential incremental shares  328,852,062   82,234,425   141,697,975   328,852,062 

The preceding table does not include 8,750,0001,875,000 and 11,625,0008,750,000 stock warrants held by employees which are not vested (or exercisable) at June 30, 2022, and June 30, 2021, respectively.

NOTE 4 – INVENTORY, NET

Inventory consists primarily of finished goods. The Company provides an allowance for any slow-moving or obsolete inventory. As of June 30, 2022, and JulyMarch 31, 2020, respectively.2022, inventory consists of the following:

SCHEDULE OF INVENTORY

   June 30, 2022   March 31, 2022 
  June 30, 2022  March 31, 2022 
Finished Goods $4,240,836  $4,482,291 
Allowance for inventory obsolescence  (108,055)  (108,055)
Inventory, net $4,132,781  $4,374,236 

NOTE 5 – OTHER CURRENT ASSETS, NET

Other current assets consist of the following:

SCHEDULE OF OTHER CURRENT ASSETS

  June 30, 2022  March 31, 2022 
  June 30, 2022  March 31, 2022 
Prepaid consulting fees, related party $2,013,706  $2,867,123 
Inventory-related deposits  312,090   384,477 
Prepaid insurance and other operational expenses  261,823   201,275 
Deposits for sales events  5,000   222,540 
Right to recover asset  15,632   15,632 
Subtotal  2,608,251   3,691,047 
Less: allowance for losses  (179,765)  (179,765)
Other current assets $2,428,486  $3,511,282 

Prepaid consulting fees represent the fair value on the grant date of stock warrants issued to DSS in January 2022 for consulting services to be rendered over a year from the issue date (see Note 12 – Related Party Transactions for more information). Prepaid insurance and other operational expenses primarily consist of payments for goods and services (such as freight, trade show expenses and insurance premiums) which are expected to be realized in the next operating cycle. Right to recover asset is associated with our customers’ right of return and is expected to be realized in one year or less. As of both June 30, 2022, and March 31, 2022, the provision for losses in connection with certain inventory-related deposits for which recoverability is less than certain was $179,765.

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NOTE 6 – INVESTMENT IN UNCONSOLIDATED ENTITIES, NET

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

The Company carries its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock at fair value in accordance with GAAP. During the three months ended June 30, 2022, the Company recognized unrealized gains, before income tax, of $4,865,354 in connection with its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock.

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

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

Investment in unconsolidated entities consists of the following:

SUMMARY OF INVESTMENT IN UNCONSOLIDATED ENTITIES

   June 30, 2022   March 31, 2022 
Investment in detachable GNTW stock warrant $7,000,000  $3,570,000 
Investment in GNTW common stock  770,865   393,141 
Investment in Stemtech convertible note  2,158,429   1,100,799 
Investment in MojiLife, LLC  1,537,000   1,537,000 
Subtotal  11,466,294   6,600,940 
Less, allowance for impairment losses  (1,537,000)  (1,537,000 
Investments $9,929,294  $5,063,940 

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

SCHEDULE OF ALLOWANCE FOR IMPAIRMENT LOSSES

   June 30, 2022   March 31, 2022 
Balance at beginning of fiscal year $1,537,000  $- 
Provision for estimated impairment losses  -   1,537,000 
Balance at end of fiscal year $1,537,000  $1,537,000 

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NOTE 47 – PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

 SUMMARY OF PROPERTY AND EQUIPMENT 

         
  June 30, 2022  March 31, 2022 
Building and building improvements $8,975,805  $8,976,878 
Computer software  1,015,742   875,925 
Furniture and fixtures  237,042   237,045 
Computer equipment  223,393   223,424 
Leasehold improvements and other  261,304   263,208 
Total property and equipment  10,713,286   10,576,480 
Impairment of property and equipment  (100,165)  (100,165 
Accumulated depreciation and amortization  (1,026,300)  (891,174)
Property and equipment, net $9,586,821  $9,585,141 

NOTE 8 – ACCRUED AND OTHER CURRENT LIABILITIES

Accrued and other current liabilities consist of the following:

SUMMARY OF ACCRUED AND OTHER CURRENT LIABILITIES

         
  June 30, 2022  March 31, 2022 
Deferred sales revenues $405,626  $547,217 
Liability associated with uncertain tax positions  921,987   921,987 
Payroll and employee benefits  309,736   478,360 
Settlement liability, current portion  -   341,919 
Lease liability, current portion  68,477   134,578 
Due to related parties  

288,731

   

125,532

 
Other operational accruals  674,539   530,189 
Accrued and other current liabilities $2,669,096  $3,079,782 

Lease liability, current portion, represent obligations due within one year under operating leases for office space, automobiles, and office equipment. See Note14 - LEASES below for more information. Other operational accruals as of June 30, 2022, as presented above, include accrued expense of $379,556 and accrued interest of $118,405.

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NOTE 9 - CONVERTIBLE NOTES PAYABLE, RELATED PARTIES

Convertible notes payable consists of the following:

SCHEDULE OF CONVERTIBLE NOTES PAYABLE

Issuance Date Maturity Date 

Interest Rate

  

Conversion Price (per share)

  June 30, 2021  March 31, 2021 
April 2021 April 2024  8% $0.20  $30,000,000  $- 
October 2017 October 2022  12% $0.15   50,000   50,000 
April 2018 April 2021  0% $0.01   100,000   100,000 
Total convertible notes payable     30,150,000   150,000 
Less: unamortized debt discount and deferred financing costs     27,659,101   15,607 
      2,490,899   134,393 
Less: current portion of convertible notes payable     100,000   99,631 
Long-term convertible notes payable    $2,390,899  $34,762 

Issuance Date Maturity Date Interest Rate  Conversion Price (per share)  June 30, 2022  March 31, 2022 
April 2021 April 2024  8% $0.20  $-  $30,000,000 
October 2017 October 2022  12% $0.15   50,000   50,000 
June 2022 June 2024  8% $0.03   27,000,000   - 
Total convertible notes payable       27,050,000   30,050,000 
Less: unamortized debt discount and deferred financing costs       20,033,135   20,151,230 
        7,016,865   9,898,770 
Less: current portion of convertible notes payable       7,016,865   9,898,770 
Long-term convertible notes payable      $-  $- 

 

The Company’s convertible notes are convertible, at the option of the holder, into shares of the Company’s Common Stock at the conversion prices shown above.

 

In October 2017, the Company issued a Convertible Promissory Note in the principal amount of $50,000 (the “Note”) to HWH International, IncInc. (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Company. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. See Note 7 below.

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In December 2019,On August 9, 2022, HWH and the Company and the holder of the Company’s convertible note dated April 13, 2018 (the “April 2018 Note”) entered intoexecuted an amendment to the underlying promissory note. Pursuant to the amendment, the parties extended the maturity date of the note to April 2021. In addition, after giving effect to the amendment, the April 2018 Note is non-interest bearing. All other terms of the April 2018 Note remain unchanged. As of the date of this Quarterly Report, the Company and the holder of the note are discussing options for the note holder to convert a portion of the note and for the Companyagreement to settle the remainder ofNote and cancel the note.related stock warrant for $78,636, which amount represents the principal plus accrued interest. The Company intendsmade the payment to conclude these discussions and to settle the April 2018 Note in the foreseeable future.HWH on August 9, 2022.

 

On April 5, 2021, the Company and Decentralized Sharing Systems, Inc. (“DSSI”) entered into a Securities Purchase Agreement, pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share, and DSSI loaned to the Company $30.0 million. DSSI, is a subsidiary of DSS, Inc. (formerly Document Security Systems, Inc. (“DSS”, “DSS”), and, together with DSS, is a major shareholder of the Company. Under the terms of the loan, the Company agreed to pay to DSSI a loan Origination Fee of $3.0 million, payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. The Note bearsbore interest at the annual rate of 8% and matures on, with a maturity date of April 5, 2024, subject to certain accelerationaccelerated provisions upon the occurrence of an Event of Default, as was defined in the Note. At any time during the term of the Note, all or part of the Note, including the principal amount less unamortized prepaid interest, if any, plus any accrued interest can becould have been converted into shares of the Company’s Class A Common Stock at the rate of $0.20 per share, at the option of the holder. Interest on the Note iswas pre-payable annually in cash or in shares of the Company’s Class A Common Stock, at the option of the Company, except that interest for the first year iswas pre-payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. As further discussed below, the Note and the detachable Warrant were redeemed in June 2022.

 

In connection with the issuance of the Note and the detachable Warrant, the Company allocated $15.0 million of the net proceeds from the loan to the detachable Warrant, allocated $12.0 million of the net proceeds to the beneficial conversion feature embedded in the Note and recognized deferred financing costs of $3.0 million. The resulting debt discount and the deferred financing costs arewere being amortized into interest expense over the term of the note (three years). During the three months ended June 30, 2021, the Company issued to DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan Origination Fee and 12,000,000 shares in prepayment of interest for the first year. In connection therewith, the Companyyear and recognized a deemed dividend of $1,080,000 for the excess of the fair value of the shares issued over the amounts settled.

 

15

On June 15, 2022, the Company and DSSI which, together with DSS, is a majority shareholder of the Company, entered into an agreement pursuant to which the Company issued, to DSSI: (a) a two-year Convertible, Advancing Promissory Note in the principal amount of $27.0 million (the “2022 Note”) in favor of DSSI and (b) a detachable Warrant to purchase up to 818,181,819 shares of the Company’s Class A Common Stock at the exercise price of $0.033 per share. The 2022 Note bears interest at the annual rate of 8% and is due and payable on demand or, if no demand, on May 1, 2024. At any time during the term of the 2022 Note, all or part of the Note may be converted into up to 818,181,819 shares of the Company’s Class A Common Stock, at the option of the holder. Under the terms of the agreement, the Company agreed to pay to DSSI a loan origination fee of $270,000. In addition, DSSI agreed to surrender to the Company all DSSI’s rights pursuant to: (a) a certain Convertible Promissory Note in the principal amount of $30.0 million issued by the Company in April 2021 in favor of DSSI, and (b) a certain detachable Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share, issued concurrently with such $30.0 million note. The Company recognized the transaction with DSSI as a debt extinguishment in accordance with GAAP. Since DSSI is a related party, the difference between the fair value of the new equity instruments and the carrying value of the retired equity instruments, was recognized in additional paid in capital on the Company’s condensed consolidated balance sheet.

During the three months ended June 30, 2021,2022, and July 31, 2020,June 30, 2021, interest expense in connection with the Company’s convertible notes was $566,975143,086 and $1,5122.9, million, respectively, excluding amortization of debt discount of $2,356,507and $2,519, respectively, and, in the three months ended June 30, 2021, amortization of deferred financing costs of $235,4012.5. million and $1.7 million, respectively. These amounts are included in interest expense in our consolidated statements of operations.

NOTE 510 – INCOME TAXES

The statutory rates for our domestic and our material foreign operations are as follows for the periods shown:

 

SCHEDULE OF STATUTORY RATES FOR OUR DOMESTIC AND FOREIGN OPERATION

Country 2021 2020   2022  2021 
United States  21%  21%  21%  21%
Republic of Korea  22%  22%  21%  22%
Effective Income Tax Rate  21%  22%

 

For the three months ended June 30, 2021, and July 31, 2020, the Company’s consolidated effective tax rate was -26.7% and 11.3%, respectively. Our consolidated effective income tax rate for the three months ended June 30, 2021, was different from the federal statutory rate primarily due to the valuation allowance of $reconciliation is as follows:

1,429,620 placed on certain deferred tax assets being carried forward or projected to reverse in future years due to the uncertainty of the Company generating taxable income in the foreseeable future.

SCHEDULE OF INCOME TAX RATE RECONCILIATION RATE

         
  Three Months Ended June 30, 
  2022  2021 
Federal statutory rate  21.0%  21.0%
State and local income taxes  0.6  (0.7)
Change in valuation allowance for NOL carry-forwards  1.3   (51.1)
Stock warrant transactions and other items  (2.8)  4.1 
Effective income tax rate  20.1%  (26.7)%

Income taxes applicable to our foreign operations are not material in the periods presented.

The effective tax rate for the three months ended July 31, 2020, was different from the federal statutory rate primarily due to state income and franchise tax liabilities.

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NOTE 611 - STOCKHOLDERS’ EQUITY

 

Common Stock

During the three months ended June 30, 2021,2022, the Company issued to DSSI: (a) a two-year Convertible, Advancing Promissory Note in the principal amount of $27.0 million (the “2022 Note”) in favor of DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan Origination Fee and (b) a detachable Warrant to purchase up to 12,000,000 shares in prepayment of interest for the first year, as more fully discussed in Note 4. In addition, during the three months ended June 30, 2021, the holders of 10,000 shares of the Company’s Series C preferred stock converted such holdings into 10,000818,181,819 shares of the Company’s Class A Common Stock.Stock at the exercise price of $0.033 per share. The transaction is discussed more fully in Note 9 – Convertible Notes Payable, Related Parties.

In May 2022, the Company and certain of its subsidiaries, on the one hand, and Alchemist, the former officer and certain entities affiliated with the former officer, on the other hand, entered into a Confidential Settlement Agreement with Mutual Releases (the “May 2022 Settlement Agreement”) pursuant to which the parties amicably settled all claims and disputes among them; (b) the former officer sold to the Company 26,091,136 shares of the Company’s common stock then under the voting and dispositive control of the former officer; (c) the Company made a one-time payment of $1,043,645; and (d) the Company and its relevant subsidiaries, on the one hand, and the former officer and relevant entities affiliated with the former officer, on the other hand, exchanged customary mutual releases of any prior obligations among them. On May 19, 2022, the closing price for the Company’s common stock was $0.25 per share. In the fiscal quarter ending June 30, 2022, the Company measured and recognized the repurchase of its common stock at its fair value of $626,187, derecognized its remaining liability under the Co-Founder’s Agreement, and recognized a recovery of $324,230 in connection with the previously recognized loss related to the Co-Founder’s Agreement.

 

At the Annual Meeting, the Company’s Shareholders ratified the Third Amended and Restated Articles of Incorporation of the Company and approved the maximum number of shares which the Corporation shall have the authority to issue of Two Billion Two Hundred Million (2,200,000,000) shares, $0.0001 par value per share, of which: (a) Two Billion (2,000,000,000) Shares of Common Stock having a par value of $0.0001 per share (“Common Stock”) and (b) Two Hundred Million (200,000,000) Shares of Preferred Stock comprised of Series A and Series C having a par value of $0.0001 per share or as authorized (“Preferred Stock”).

16

The Company’s Board of Directors has designated 10,000,000 shares of Class B Common Stock, par value 0.0001 per share. As of both: June 30, 2022, and March 31, 2022, there were 288,923,969 shares of the Company’s Class A Common Stock issued. As of June 30, 2022, and March 31, 2022, there were 262,832,833 shares and 288,923,969 shares, respectively, net of 26,091,136 shares held in Treasury Stock at June 30, 2022, of the Company’s Class A Common Stock outstanding. As of June 30, 2021,2022, and March 31, 2022, there were 187,110,7690 shares of ourthe Company’s Class AB Common Stock remained issued and outstanding.

NOTE 712 - RELATED PARTY TRANSACTIONS

 

Decentralized Sharing Systems, Inc.

In July 2020, the Company and Heng Fai Ambrose Chan, a Director of the Company, entered into a Stock Purchase and Share Subscription Agreement (the “SPA Agreement”) pursuant to which Mr. Chan invested $3.0 million in the Company in exchange forand the Company agreed to issue 30.0 million shares of the Company’s Class A Common Stock and a fully vested Stock Warrant to purchase up to 10.0 million shares of the Company’s Class A Common Stock at an exercise price of $0.20 per share. On the stock warrant issuance date, the closing price for the Company’s common stock was $0.177 per share and the Company recognized a deemed dividend of $2.4 million. SimultaneouslyConcurrently with the SPA Agreement, Mr. Chan and Decentralized Sharing Systems, Inc. (“DSSI”), a subsidiary of Document Security Systems, Inc.(“DSS”), and, together with DSS, then a major shareholder of the Company, entered into an Assignment and Assumption Agreement pursuant to which Mr. Chan assigned to DSS all interests in the SPA Agreement. In July 2020, the Company issued 30.0 million shares of its Class A Common Stock to DSS, an “accredited investor” as defined in the Securities Act, pursuant to the SPA Agreement. Under the terms of the SPA Agreement, the shares of Class A Common Stock issued to DSS are subject to a one (1) year restriction. The Stock Warrant issued pursuant to the SPA Agreement expires on the third anniversary from the issuance date, unless exercised earlier.

 

OnIn April 5, 2021, the Company and DSSI entered into a Securities Purchase Agreement, pursuant to which DSSI granted a $30.0 million loan to the Company issued:in exchange for: (a) a Convertible Promissory Note in the principal amount of $30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Stock Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share. At any time during the term of the Note, all or part of the Note, including the principal amount less unamortized prepaid interest, if any, plus any accrued interest can be converted into shares of the Company’s Class A Common Stock at the rate of $0.20 per share, at the option of the holder. Under the terms of the loan agreement, the Company agreed to pay to DSSI a loan origination fee of $3.0 million, payable in shares of the Company’s Class A Common Stock, with the number of shares to be calculated at the rate of $0.20 per share. In April 2021, Sharing Services issued 27.0 million shares of its Class A Common Stock to DSSI, including 15.0 million shares in payment of the loan origination fee and 12.0 million shares in prepayment of interest on a loan for the first year.

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

In January 2022, the Company and DSS who, together with its subsidiaries, is currently a majority shareholder of the Company, entered into a one-year Business Consulting Agreement (the “Consulting Agreement”) pursuant to which DSS will provide to the Company certain consulting services, as defined in the Consulting Agreement. The Consulting Agreement may be terminated by either party on a 60-day’s written notice. In connection with the Consulting Agreement, the Company agreed to pay DSS a flat monthly fee of sixty thousand dollars ($60,000) and DSS received a fully vested detachable Stock Warrant to purchase up to 50.0 million shares of the Company’s Class A Common Stock, at the exercise price of $0.0001 per share. On the effective date of the Consulting Agreement, the closing price of the Company’s common stock was $0.07 per share and the fair value of the Stock Warrant was $3.5 million. The fair value of the Stock Warrant is being recognized as consulting expense over the term of one year. During the three months ended June 30, 2022, the Company recognized consulting expense of $872,603, in connection with the Consulting Agreement. In February 2022, the Company issued 50.0 million shares of its Common Stock Class A to DSS in connection with exercise of the Stock Warrant.

On June 15, 2022, the Company and Decentralized Sharing Systems, Inc. (“DSSI”) entered into a Securities Purchase Agreement (the “SPA”), pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $27.0 million (the “2022 Note”) in favor of DSSI and (b) a detachable Warrant to purchase up to 818,181,819 shares of the Company’s Class A Common Stock (the “Warrant”), at $0.033 per share, in exchange for the $27.0 million. The 2022 Note bears interest at the annual rate of 8% and is due and payable on demand or, if no demand, on May 1, 2024. At any time during the term of the 2022 Note, all or part of the Note may be converted into up to 818,181,819 shares of the Company’s Class A Common Stock, at the option of the holder.

17

In connection with the loan, the Company agreed to pay to DSSI a loan Origination Fee of $270,000. In addition, DSSI agreed to surrender to the Company all DSSI’s rights pursuant to: (a) a certain Convertible Promissory Note in the principal amount of $30.0 million issued by the Company in April 2021 in favor of DSSI, and (b) a certain detachable Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share, and DSSI loaned to the Companyissued concurrently with such $30.0 million. Under the terms of the loan, the Company agreed to pay to DSSI a loan Origination Fee of $3.0million payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. See Note 4 for more information.note.

 

As of June 30, 2021,2022, DSS and its affiliates owned, in the aggregate, 91.2191.9 million shares of the Company’s Class A Common Stock, excluding 160.0878.2 million shares issuable upon the exercise of warrants held by DSS and 150.0818.2 million shares issuable upon conversion of the Note discussed in the third preceding paragraph. Heng Fai Ambrose Chan, Frank D. Heuszel, and John (“JT”) Thatch, each a Director of the Company, also serve on the Board of Directors of DSS. Mr. Chan serves as Chairman of the Board of Directors of the Company. Mr. Thatch also serves as President, CEO and InterimVice Chairman of the Board of Directors of the Company.

HWH International, Inc.

 

In October 2017, the CompanySharing Services issued a Convertible Promissory Note in the principal amount of $50,000 (the “Note”) to HWH International, IncInc. (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Company.Company in April 2020. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. As of the date of this Quarterly Report,On August 9, 2022, HWH and the Company and HWH are jointly reviewingexecuted an agreement to settle the Note and cancel the detachablerelated stock warrant.warrant for $78,635.62, which amount represents the principal plus accrued interest. The number of shares thatCompany made the payment to HWH may acquire upon conversion of the HWH Note and exercise of the detachable warrant may be greater than the amounts described in this paragraph, depending on the results of such review.August 9, 2022.

 

HWH World, Inc.

 

A subsidiary of the Company operating in the Republic of Korea subleases office space from HWH World, Inc. (“HWH World”), a subsidiary of DSS and a company affiliated with Heng Fai Ambrose Chan, a Director of the Company. UnderPursuant to the terms of the sublease agreement, the Company’s subsidiary occupiesCompany recognized a right-of-use asset and an operating lease liability of $261,835 in connection therewith. In fiscal year ended March 31, 2022, the Company recognized expense of $222,092 in connection this lease. As of March 31, 2022, accounts payable included payments due to HWH World under the lease of $213,742. In May 2022, the Company and HWH World amended the related sublease agreement to significantly reduce the space free of rent.subleased by the Company and the related rent obligation. On June 30, 2022, the right-of-use asset and liability were written off and a new month-to-month rental agreement was entered into for the reduced space subleased by the Company. The company recognized $936 in rent expense in connection with the new lease.

 

In September 2021, the Company and HWH World entered into an Advisory Agreement pursuant to which the Company provides strategic advisory services to HWH World in connection with its North America expansion plans in exchange for a monthly fee of $10,000. During the fiscal year ended March 31, 2022, the Company recognized consulting income of $76,700 in connection therewith. The Advisory Agreement was terminated during the three months ended June 30, 2022.

Impact Biomedical, Inc.

In the fiscal year ended March 31, 2022, a wholly owned subsidiary of the Company purchased health and wellness products from Impact Biomedical, Inc., a subsidiary of DSS, in the aggregate amount of $111,414. During the three months ended June 30, 2022, the Company’s purchases of health and wellness products from Impact Biomedical, Inc., totaled $19,247.

18

K Beauty Research Lab. Co., Ltd

 

In January 2021 and May 2021,the fiscal year ended March 31, 2022, a wholly owned subsidiary of the Company issued purchase orders to acquirepurchased skin care products manufactured by K Beauty Research Lab. Co., Ltd (“K Beauty”), a South Korean-based supplier of skin care products that is affiliated with Heng Fai Ambrose Chan, a Director of the Company, in the aggregate amount of $0.42.3 million and $2.2 million, respectively.million. The Company’s affiliates operating in Asia intend to distribute skin care and other products in South Korea and other countries, including skin care products procured from K Beauty, as part of the Company’s previously announced strategic growth plans. During the three months ended June 30, 2022, the Company purchased skin care products manufactured by K Beauty Research Lab in the amount of $643.

 

15

Premier Packaging Corporation

InDuring the three months ended June 30, 2021, a wholly owned subsidiary of the Company issued purchase orders to Premier Packaging Corporation, a subsidiary of DSS, to acquire printed packaging materials in the aggregate amount of $151,509. No purchase orders were issued during the three months ended June 30, 2022.

Alchemist Holdings, LLC

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

In May 2022, the Company and certain of its subsidiaries, on the one hand, and Alchemist, the former officer and certain entities affiliated with the former officer, on the other hand, entered into a Confidential Settlement Agreement with Mutual Releases (the “May 2022 Settlement Agreement”) pursuant to which the parties amicably settled all claims and disputes among them; (b) the former officer sold to the Company 26,091,136 shares of the Company’s common stock then under the voting and dispositive control of the former officer; (c) the Company made a one-time payment of $1,043,645; and (d) the Company and its relevant subsidiaries, on the one hand, and the former officer and relevant entities affiliated with the former officer, on the other hand, exchanged customary mutual releases of any prior obligations among them. On May 19, 2022, the closing price for the Company’s common stock was $0.25 per share. In the fiscal quarter ending June 30, 2022, the Company measured and recognized the repurchase of its common stock at its fair value of $626,187, derecognized its remaining liability under the Co-Founder’s Agreement, and recognized a recovery of $324,230 in connection with the previously recognized loss related to the Co-Founder’s Agreement.

The Company subleases warehouse and office space from Alchemist, until May 2022, a 10% shareholder of the Company. During the three months ended June 30, 2022, rent expense associated with such sublease agreement was $25,081.

19

American Premium Water Corporation

In July 2021, the Company, and American Premium Water Corporation (“American Premium”) entered into a business consulting agreement pursuant to which the Company provides consulting services to American Premium in exchange for a monthly fee of $4,166. Mr. John “JT” Thatch, a director of the Company, also serves on the Board of Directors of American Premium. During the three months ended June 30, 2022, the Company recognized consulting fee income of $12,498.

Alset Title Company, Inc.

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

Hapi Café, Inc.

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

American Pacific Bancorp

On June 15, 2022, Sharing Services, through one of its subsidiaries, entered into a secured real estate promissory note with American Pacific Bancorp, Inc. (“APB”), and the Company entered into a Loan Agreement pursuant to which APB loaned the Company approximately $5.7 million. The loan bears interest at the annual rate of 8% matures on June 1, 2024, is payable in equal monthly instalments of $43,897 commencing on July 1, 2022 (with the remainder due on June 1, 2024), and is secured by a first mortgage interest on the Company’s Lindon, Utah office building. In connection with this loan, the Company received net proceeds of $5,522,829 from APB on June 17, 2022. APB is a subsidiary of DSS. Heng Fai Ambrose Chan, and Frank D. Heuszel, each a Director of the Company, also serve on the Board of Directors of APB.

NOTE 813 – STOCK-BASED COMPENSATION

 

Stock Warrants

 

Stock Warrants Issued to Directors, Officers and Employees

 

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

 

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

 

During fiscal year 2020;2020, subsidiaries of the Company entered multi-year employment agreements with its key employees. In general, each employment contract contained a fully vested initial grant of warrants exercisable at a fixed exercise price and, provided for subsequent grants that were exercisable at a discounted price based on the 10-day average stock price determined at the time of exercise. The subsequent grants would vest at each anniversary date of the employment agreement effective date. The Company begins recognizing the compensatory nature of the warrants at the service inception date and ceases recognition at the vesting date. Due to the variable nature of the exercise price for some grants, the Company will continue to recognize expense (or benefit) after the end of the service period until the warrants are exercised or expire. As such, the Company disclosures below are based on either (i) the fixed exercise price of the warrant; or (ii) the variable exercise price of the warrant as determined on the last day of the period.

 

20

During the three months ended June 30, 2022, and 2021, wethe Company recognized a compensatory gain of $114,960 and $1,134,170, respectively, in connection with grants with a variable exercise price after service is completed. During the three months ended July 31, 2020, we recognized a compensatory loss of $1,123,500 in connection with such grants.

NOTE 914 – LEASES

 

The Company leases space for its offices and warehouse space, under lease agreements classified as “operating leases’” as defined in ASC Topic 842. As of June 30, 2021, the Company had net operating lease right-of-use (“ROU”) assets of $288,268 and net finance lease right-of-use assets of $0. As of June 30, 2021, our operating lease liabilities were $313,022 and our finance lease liabilities were $0.

 

The weighted-averageCompany leases space for its corporate headquarters, warehouse space, automobiles, and office and other equipment, under lease agreements classified as operating leases. The Company has remaining lease term and discount rate relatedterms of approximately 1 to the Company’s lease liabilities as of June 30, 2021, were 1.510 years andon the remaining Leases. Leases with an initial term in excess of 12 months are recognized on the consolidated balance sheet based on the present value of future lease payments over the defined lease term at the lease commencement date. Future lease payments were discounted using an implicit rate of 10% to 12% respectively. The Company’s lease discount rates are generally based on estimates of its incremental borrowing rate, as discount rates implicit in the Company’s leases cannot be readily determined.connection with most leases.

16

 

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

 

SCHEDULE OF OPERATING LEASE ASSETS AND LIABILITIES

Assets Classification June 30, 2021  March 31, 2021  Classification June 30, 2022  March 31, 2022 
Operating leases Right-of-use assets, net $288,268  $428,075  Right-of-use assets, net $527,492  $593,389 
Operating leases, Right-of-use assets, net Right-of-use assets, net $288,268  $428,075 
Total lease assets   $288,268  $428,075    $527,492  $593,389 
                    
Liabilities                    
Operating leases Accrued and other current liabilities $260,623  $373,398  Accrued and other current liabilities $68,477  $134,578 
Operating leases, Accrued and other current liabilities Accrued and other current liabilities $260,623  $373,398 
Operating leases Lease liability, long-term  52,399   77,810  Lease liability, long-term  461,515   461,515 
Operating leases, Lease liability, long-term Lease liability, long-term  52,399   77,810 
Total lease liabilities $313,022  $451,208  $529,992  $596,093 

 

The following information pertains to the Company’s leases for the periods indicated:

SCHEDULE OF OPERATING LEASE COSTS

   Three Months Ended    Three Months Ended June 30, 
Lease cost Classification June 30, 2021  July 31, 2020  Classification 2022  2021 
Operating lease cost General and administrative expenses $159,820  $140,223  General and administrative expenses $23,178  $159,820 
Operating lease cost Depreciation and amortization  -   -  Depreciation and amortization  -   - 
Operating lease cost Interest expense, net  -   -  Interest expense, net  -   - 
Total lease cost $159,820  $140,223  $23,178  $159,820 

 

The Company’s lease liability isliabilities are payable as follows:

 

SCHEDULE OF OPERATING LEASE LIABILITY PAYABLE

Twelve months ending June 30,    Amount 
2022 $260,623 
2023  52,399  $102,897 
2024-2026  - 
2024  52,128 
2025  60,500 
2026  69,746 
2027  79,713 
Thereafter  -   231,108 
Total remaining payments  596,092 
Less imputed interest  (66,100)
Total lease liability $313,022  $529,992 

21

 

NOTE 1015 – COMMITMENTS AND CONTINGENCIES

 

Regulatory Matters

In May 2021, the Company announced that it has received a notice from the pertinent licensing authority in the Republic of Korea, (“KOSSA”) that the multi-level license previously issued to the Company’s subsidiary organized in South Korea has been cancelled by KOSSA. The Company is actively reviewing all correspondence with KOSSA and investigating the facts surrounding the cancellation and reviewing its available options. As the Company announced earlier, the Company still intends to launch operations in South Korea in the foreseeable future and is working to resolve all outstanding issued raised by KOSSA.

Legal Matters in General

The Company has incurred several claims in the normal course of business. The Company believes such claims can be resolved without any material adverse effect on our consolidated financial position, results of operations, or cash flows.

 

The Company maintains certain liability insurance. However, certain costs of defending lawsuits are not covered by or only partially covered by its insurance policies, including claims that are below insurance deductibles. Additionally, insurance carriers could refuse to cover certain claims, in whole or in part. The Company accrues costs to defend itself from litigation as they are incurred.

 

The outcome of litigation is uncertain, and despite management’s view of the merits of any litigation, or the reasonableness of the Company’s estimates and reserves, the Company’s financial statements could nonetheless be materially affected by an adverse judgment. The Company believes it has adequately reserved for the contingencies arising from current legal matters where an outcome was deemed to be probable, and the loss amount could be reasonably estimated. No provision for legal matters was deemed necessary at June 30, 2021.2022.

 

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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.

 

(a)Case No. 4:20-cv-00946; Dennis Burback, Ken Eddy and Mark Andersen v. Robert Oblon, Jordan Brock, Jeff Bollinger, John Thatch, Four Oceans Global, LLC, Four Oceans Holdings, Inc., Alchemist Holdings, LLC, Elepreneurs U.S., LLC, Elevacity U.S., LLC, Sharing Services Global Corporation, Custom Travel Holdings, Inc., and Does 1-5, pending in the United States District Court for the Eastern District of Texas. On December 11, 2020, three investors in Four Oceans Global, LLC filed a lawsuit against the Company, its affiliated entities, and other persons and entities related to an investment made by the three investors in 2015. The Company and its affiliated entities have filed an answer denying the three investors’ claims. ThisPlaintiffs filed a first amended complaint on October 14, 2021. The Company and its affiliated companies were dismissed with prejudice from this matter remains pending as of June 30, 2021.on July 20, 2022.
(b)AAA Ref. No. 01-20-0019-3907; Sharing Services Global Corporation, Elevacity Holdings, LLC, Elevacity U.S., LLC, Elepreneurs Holdings, LLC and Elepreneurs U.S., LLC v. Robert Oblon, pending before the American Arbitration Association. On December 30, 2020, the Company and its affiliated companies filed an arbitration complaint against Robert Oblon for breach of contract and a declaratory judgment relating to the Multi-Party Settlement Agreement with Robert Oblon. This matter remains pendingwas settled and closed as of June 30, 2021.2022.
(c)Case No. 4:20-cv-00989; Sharing Services Global Corporation, Elevacity Holdings, LLC, Elevacity U.S., LLC, Elepreneurs Holdings, LLC and Elepreneurs U.S., LLC v. Robert Oblon, pending in the in the United States District Court for the Eastern District of Texas. On December 30, 2020, the Company and its affiliated companies filed a lawsuit against Robert Oblon seeking injunctive relief relating to the Multi-Party Settlement Agreement with Robert Oblon. This matter is a companion case to the AAA arbitration proceeding described in paragraph (b) abovewas settled and while it remains pendingclosed as of June 30, 2021, further action in this case has been stayed by court order, pending final adjudication of the referenced AAA arbitration proceeding.2022.
(d)Case No. 4:21-cv-00026; Elepreneurs Holdings, LLC d/b/a Elepreneur, LLC, Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC, and SHRG IP Holdings, LLC v. Lori Ann Benson, Andrea Althaus and Lindsey Buboltz, pending in the United States District Court for the Eastern District of Texas. On December 31, 2020, the Company filed suit against three former distributors and obtained injunctive relief from the 429th Judicial District of Collin County, Texas. The lawsuit was removed by the three former distributors to federal court. The Company subsequently obtained injunctive relief from the federal court. TheThis matter remains pending as of June 30, 2021.2022.
(e)Case No. 4:21-cv-00183; Sharing Services Global Corporation f/k/a Sharing Services, Inc., Elepreneurs Holdings, LLC n/k/a Elevacity Holdings, LLC, Elepreneurs U.S., LLC n/k/a Elevacity U.S., LLC and SHRG IP Holdings, LLC v. AmplifeiIntl, LLC d/b/a HAPInss and HAPInssBrands, LLC pending in the United States District Court for the Eastern District of Texas. On March 5, 2021, the Company and its affiliated entities filed suit against a newly formed competitor for various claims including trademark infringement, trade secret violations, and unfair competition under state and federal law as well as tortious interference with contracts and business relationships. TheThis matter remains pendingwas settled and closed as of June 30, 2021.2022.

22

(f)Case No. 429-01137-2022; Elevacity U.S., LLC d/b/a The Happy Co. and Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC v. Mark Willodson, Judy Willodson and Valentus, Inc., pending in the 429th Judicial District Court of Collin County, Texas. On December 4, 2019, Entrepreneur Media, Inc.March 9, 2022, the Company filed suit against a Notice of Opposition in response to the “Elepreneurs” trademark application filed by SHRG IP Holdings, LLC, a wholly owned subsidiary of the Company. This opposition proceeding is now pending before the Trademark Trialcompetitor and Appeal Board of the United States Patent and Trademark Office. On April 13, 2020, SHRG IP Holdings, LLC filed an answer to the Notice of Opposition. A scheduling order has been entered and the parties have exchanged initial disclosures.former distributors. This matter remains pending as of June 30, 2021.2022.

18
 
(g)Case No. 4:22-cv-00042; Elevacity U.S., LLC d/b/a The Happy Co. and Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC v. Brian Christopher Schweda, Jr., pending in the United States District Court for the Eastern District of Texas. On January 20, 2022, the Company filed suit against a former distributor. This matter remains pending as of June 30, 2022.
(h)Case No. 4:22-cv-00047; Elevacity U.S., LLC d/b/a The Happy Co. and Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC v. Kimberley McLean, pending in the United States District Court for the Eastern District of Texas. On January 20, 2022, the Company filed suit against a former distributor. This matter remains pending as of June 30, 2022.

 

NOTE 1116 - FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

 

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

 

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

 SUMMARYSCHEDULE OF VALUATION HIERARCHY FINANCIAL ASSETS AND LIABILITIES

 Total  Level 1  Level 2  Level 3 
 June 30, 2021  June 30, 2022 
 Total  Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3 
Assets                                
                                
Notes receivable $84,529  $-  $-  $84,529 
Investment in unconsolidated entities $9,929,294  $-  $-   9,929,294 
Total assets $84,529  $-  $-  $84,529  $9,929,294  $-  $-  $9,929,294 
Liabilities                                
Notes Payable $-  $-  $-  $- 
                
Convertible notes payable  36,092,254   -   -   36,092,254  $25,577,273  $-  $25,527,273  $50,000 
Total liabilities $36,092,254  $-  $-  $36,092,254  $25,577,273  $-  $25,527,273  $50,000 

 

 Total  Level 1  Level 2  Level 3 
 March 31, 2021  March 31, 2022 
 Total  Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3 
Assets                         
                         
Notes receivable $94,600  $-  $-  $94,600 
Investment in unconsolidated entities $5,063,940  $-  $-  $5,063,940 
Total assets $94,600  $-  $-  $94,600  $5,063,940  $-  $-  $5,063,940 
Liabilities                                
Notes Payable $1,040,400  $-  $-  $1,040,400 
                
Convertible notes payable  134,393   -   -   134,393  $5,840,000  $-  $5,790,000  $50,000 
Total liabilities $1,174,793  $-  $-  $1,174,793  $5,840,000  $-  $5,790,000  $50,000 

 

NOTE 1217 - SUBSEQUENT EVENTS

On July 28, 2021,2022, at the Company held itsCompany’s Annual Meeting of Stockholders. At the meeting,Stockholders, the Company’s Shareholders:Stockholders: (i) elected each John (“JT”) Thatch and Robert H Trapp to serve as Class I directors for a four-year term or until their respective successors are elected and qualified, (ii) ratified the SecondThird Amended and Restated Articles of Incorporation of the Company which was previously approved by the Board of Directors, and (ii)(iii) ratified the appointment by the Board of Directors of Ankit Consulting Services, Inc., Certified Public Accountants as the Company’s independent registered public accounting firm for the fiscal year ending March 31,that commenced on April 1, 2022. No other matters were proposed or voted on at

In July and August 2022, the meeting. The Second Amended and Restated Articles of Incorporation ratified at the meeting, among other things, resultedCompany made investments in an increasemarketable securities, in the numberaggregate, of approximately $5.1 million to be carried at fair value in the Company’s unaudited consolidated financial statements.

In October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $50,000 (the “Note”) to HWH International, Inc. (“HWH”). Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s stock to 1,000,000,000 shares, including: (a) 800,000,000 shares of Common Stock, having a par valueat an exercise price of $0.00010.15 per share,share. On August 9, 2022, HWH and (b) 200,000,000 shares of Preferred Stock having a par value ofthe Company executed an agreement to settle the Note and cancel the related stock warrant for $0.000178,636 per share and comprised of, which amount represents the Company’s Convertible Series A Preferred Stock and Convertible Series C Preferred Stock.principal plus accrued interest. The Company made the payment to HWH on August 9, 2022.

1923

 

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

 

In its fiscal year 2021, the Company changed its fiscal year-end from a fiscal year ending on April 30 to a fiscal year ending on March 31. The following section discusses management’s views of the financial condition and the results of operations and cash flows of Sharing Services Global Corporation and consolidated subsidiaries. This section should be read in conjunction with: (a) our audited consolidated financial statements and related notes included in our TransitionAnnual Report on Form 10-K for the transition periodfiscal year ended March 31, 2021,2022, and (b) our condensed consolidated financial statements included elsewhere in this Quarterly Report. This section may contain forward-looking statements. See “Cautionary Notice Regarding Forward-Looking Statements” above for a discussion of forward-looking statements.

 

Summary Results of Operations:

  Three Months Ended June 30,    
  2022  2021  Increase (Decrease)  

%

Change

 
Net sales $5,303,618  $11,211,526  $(5,907,908)  -52.7%
Gross profit  3,646,590   7,857,716   (4,211,126)  -53.6%
Operating expenses  (7,308,703)  (9,878,785)  (2,570,081)  -26.0%
Operating loss  (3,662,113)  (2,021,069)  (1,641,044)  81.2%
Non-operating income (expense), net  1,969,246   (779,049)  2,748,295   

-352.8

%
Loss before income taxes  (1,692,867)  (2,800,118)  (1,107,251)  -39.5%
Income tax (benefit) expense  (339,857)  747,889   (1,087,746)  -145.4%
Net loss $(1,353,010) $(3,548,007) $2,194,997  -61.9%

Highlights for the Three months ended June 30, 2021:2022:

 

 ●For the three months ended June 30, 2021,2022, our consolidated net sales decreased $10.7$5.9 million, or 48.8%52.7%, to $11.2$5.3 million, compared to the three months ended July 31, 2020.June 30, 2021.
 ●For the three months ended June 30, 2021,2022, our consolidated gross profit decreased $8.1$4.2 million, or 50.9%53.6%, to $7.9$3.6 million, compared to the three months ended July 31, 2020.June 30, 2021. Our consolidated gross margin was 68.8% for the three months ended June 30, 2022, compared to 70.1% for the three months ended June 30, 2021, compared to 73.1% for the three months ended July 31, 2020.2021.
 ●For the three months ended June 30, 2021,2022, our consolidated operating expenses decreased $6.1$2.6 million, or 38.1%26.0%, to $9.9$7.3 million, compared to the three months ended July 31, 2020.June 30, 2021.
 ●For the three months ended June 30, 2021,2022, our consolidated operating loss was $2.0$3.7 million, compared to operating earnings of $29,032$2.0 million for the three months ended July 31, 2020.June 30, 2021.
 ●For the three months ended June 30, 2021,2022, our consolidated net non-operating expenses were $779,049income was $1.9 million, compared to $1.2 millionnet non-operating expenses of $779,049 for the three months ended July 31, 2020.June 30, 2021.
 ●For the three months ended June 30, 2021,2022, our consolidated net loss was $3.5$1.3 million compared to $1.0net loss of $3.5 million for the three months ended July 31, 2020.June 30, 2021. For the three months ended June 30, 2022, and June 30, 2021, our diluted losslosses per share waswere $0.00 and $0.02, compared to $0.01 for the three months ended July 31, 2020.respectively.
 ●For the three months ended June 30, 2021,2022, our consolidated net cash used by operating activities was $6.0$3.8 million compared to $3.7$6.0 million for the three months ended July 31, 2020.June 30, 2021.
 ●In April 2021,June 2022, the Company borrowed $30.0 million fromand Decentralized Sharing Systems, Inc. (“DSSI”), a subsidiary of Document Security Systems,DSS, Inc.(“DSS”), and, together with DSS, a major shareholder of the Company.Company entered into an agreement pursuant to which the parties to the agreement replaced the $30.0 million loan from April 2021 with a $27.0 million loan.
 ●In April 2021,June 2022, the Company, issuedthrough a subsidiary, and American Pacific Bancorp, Inc. (“APB”), a subsidiary of DSS, entered into a Loan Agreement pursuant to DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of a loan Origination Fee of $3.0 million and 12,000,000 shares in prepayment of $2.4 million in interest in connection withwhich APB loaned the DSSI loan discussed above.Company approximately $5.7 million.

24

 

Overview

 

Summary Description of Business

Sharing Services Global Corporation and subsidiaries (“Sharing Services”, “we,” or the “Company”) aim to build shareholder value by developing or acquiring businesses and technologies that increase the Company’s product and services portfolio, business competencies, and geographic reach.

 

Currently, the Company, through its subsidiaries, markets and distributes its health and wellness and other products primarily in the United States,U.S. and Canada using a direct selling business model. In addition, the Republic of Korea,Company distributes its products from the U.S. to customers located in Australia, New Zealand and other countries in the Asia Pacific region. Through itscountries. The Company’s U.S. subsidiaries the Company currently markets itsmarket our products and services primarily through an independent sales force, using a direct selling business model. The Company does not currently operate retail stores. It markets its products and services through its independent sales force, using itstheir proprietary websites, including: www.thehappyco.com www.elevacity.com and using social media.www.thehappyco.com. In June 2021, the Company, through a subsidiary, commenced operations in the Republic of Korea (South Korea).

 

The Company is an emerging growth company and was incorporated in the State of Nevada inon April 24, 2015.

As further discussed below, the Company intends to continue to grow its business both organically and by making strategic acquisitions from time to time of businesses and technologies that augment its product portfolio, complement its business competencies, and fit its growth strategy.

 

Convertible Notes and Borrowing Under Short-term Financing Arrangements

 

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

 

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Industry and Business Trends

 

The information in “Industry and Business Trends” included in ITEM 1 — “Business” in our TransitionAnnual Report on Form 10-K for the fiscal year ended March 31, 2021,2022, is incorporated herein by reference.

Change of Fiscal Year

In March 2021, the Company adopted a change in its fiscal year end, from a fiscal year ending on April 30 to a fiscal year ending on March 31. Accordingly, this discussion and analysis relates to results of operations and cash flows for the three months ended June 30, 2021 (91 days) compared to the three months ended July 31, 2020 (92 days).

 

Strategic Profitable Growth Initiatives

 

The Company intends to grow its business by pursuing a multipronged growth strategy, which includes increasing the number ofthat includes: (a) expanding its product offerings, both within the health and wellness category and in the U.S.new product categories, (b) expanding its direct-to-consumer geographic footprint (primarily in Asia), and Canada expanding US sales directly to foreign consumers, opening offices and sales activities in the Asia Pacific region, and developing and(c) launching aits previously announced membership-based consumer travel membership program.products line worldwide. This growth strategy may also include the use of strategic acquisitions of businesses that augment the Company’s product and services portfolio, business competencies and geographic reach.

 

SignificantContinuing Uncertainty Regarding the Potential ImpactRecent COVID Pandemic

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

 

In efforts to protect our customers, distributors, employees, and other business partners, in 2020, we instituted several preventive measures, including temporarily transitioning a significant number of our corporate employees to working remotely, increasing efforts to clean and sanitize our business facilities, increasing employee safety communication, and transitioning our sales conventions to a virtual convention platform. Some ofWhile these temporary measures have increased our already significant reliance on telephone and computer systems and on the availability of continued and impeded access to the Internet by our business. The timing when these temporary measures will beare increasingly being eased or fully reversed altogether is contingent on the success of current efforts, by governmental policy makers, health service providers, and others, to contain the pandemic. Atat the time of this Quarterly Report, we cannot project with certainty the timing and extend of any potential easing or reversal ofbelieve these necessary, temporary measurements are likely to have had an adverse impact on our temporary preventive measures.business.

 

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There continues to be significant uncertainty in the countries where we operate about (a) the timing and availability of sufficient vaccines, (b) the timing and speed of any economic recovery, and (c) the impact in consumer demand, if any, resulting from past and future economic stimulus and relief programs.

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

 

The COVID emergency also may have the effect of exacerbating some of the other risk factors described elsewhere in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, including the success of our growth initiatives, our ability to anticipate and effectively respond to changes in consumer preferences and buying trends in a timely manner, our dependence on one supplier for a substantial portion of the products we sell, potential fluctuations in our quarterly financial performance, our ability to generate sustained, positive cash flows from operations with which to fund our working capital needs, the potential impact on our financial performance from economic slowdowns, our ability to effectively and cost-efficiently respond to any epidemics and other health emergencies, and the potential impact on our business of any disruption in our information technology systems.

Results of Operations

The Three months ended June 30, 2021,2022, Compared to the Three months ended July 31, 2020June 30, 2021

Net Sales

 

The Company recently changed its fiscal year, from a fiscal year ending on April 30 to a fiscal year ending on March 31. For the three months ended June 30, 2021 (91-days),2022, our consolidated net sales decreased by $10.7$5.9 million, or 48.8%52.7%, to $11.2$5.3 million, compared to the three months ended July 31, 2020 (92 days).June 30, 2021. The decrease in net sales mainly reflects: (a) one less day of sales in the amount of approximately $238,000 (b) continuation of the decline in consumer orders that we experienced since the fourth quarter of the fiscal year 2020, (c)(b) a decline in independent distributor orders, in the number of new independent distributors and in the number of continuing active distributors, resulting, in part, from recent product reformulations and increased competition for independent distributors, and (d)(c) the generally adverse impact on consumer buying trends resulting from the recent increase in consumer good prices and in energy costs in the U.S. and from lingering effects of the COVID global health emergency and actions taken to help mitigate the spread of the virus in the geographies in which we operate. In efforts to restore strong sales growth, in the past several months, we have developed and launched our new business brand, “The Happy CoTM,” at our Elevacity division, have accelerated our previously announced initiatives to expand our operations into additional international geographies, and have further intensified our efforts to recruit, develop and reward our distributors and our efforts to reach new consumers, including through the continued introduction of new products.

 

We believe there continues to be significant uncertainty about the potentially adverse impact of the current health crisis on the economies and employment markets of several countries, including the U.S. and Canada. Please see Overview - Significant Uncertainty Regarding the Potential Impact of Ongoing COVID Health Crisis above.

 

The $10.7$5.9 million decrease in consolidated net sales primarily reflects a decrease in number of comparable product units sold, partially offset by sales of products introduced since July 31, 2020,June 30, 2021, of approximately $3.4 million.$795,000.

21

 

During the three months ended June 30, 2022, and 2021, the Company derived substantially all its consolidated net sales from the sale of its Elevate health and wellness product line. During the three months ended July 31, 2020, the Company derived approximately 98% of its consolidated net sales from the sale of its Elevate health and wellness product line.

 

During the three months ended June 30, 2021,2022, approximately 70%63% of our net sales were to customers (including approximately 31%37% to recurring customers, which we refer to as “SmartShip” sales, and approximately 39%26% were to new customers) and approximately 30%37% of our net sales were to our independent distributors.

Gross Profit

 

For the three months ended June 30, 2021,2022, our consolidated gross profit decreased by $8.1$4.2 million, or 50.9%53.6%, to $7.9$3.6 million, compared to the three months ended July 31, 2020,June 30, 2021, and our consolidated gross margins were 70.1%68.8% and 73.1%70.1%, respectively. For the three months ended June 30, 2021,2022, gross margin was affected by an increase in shipping expenses and promotional pricing, as a provision for excess (slow-moving) inventory $116,334 and a shift in product sales mix (to lower margin products) in the normal coursepercentage of business.sales.

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Selling and Marketing Expenses

 

For the three months ended June 30, 2021,2022, our consolidated selling and marketing expenses decreased by $4.5$2.4 million, to $2.8 million, or 46.5% of consolidated net sales, compared to $5.2 million, or 45.9% of consolidated net sales, compared to $9.6 million, or 43.9% of consolidated net sales, for the three months ended July 31, 2020.June 30, 2021. The decrease in consolidated selling and marketing expenses is due primarily to lower sales commissions of $4.4$2.7 million (which reflects decrease in our consolidated net sales discussed above) and lower general marketing expenses.partially offset by higher sales convention expenses of approximately $309,800 (as we resumed holding some in-person conventions).

General and Administrative Expenses

 

For the three months ended June 30, 2021,2022, our consolidated general and administrative expenses (which include corporate employee compensation and benefits, stock-based compensation, professional fees, rent and other occupancy costs, certain consulting fees, telephone and information technology expenses, insurance premiums, and other administrative expenses) decreased by $1.6approximately $177,407 to $4.5 million, or 85.8% of consolidated net sales compared to $4.7 million, or 42.2% of consolidated net sales, compared to $6.4 million, or 29.1% of consolidated net sales, for the three months ended July 31, 2020.June 30, 2021. The $1.6 millionapproximately $177,407 decrease in consolidated general and administrative expenses was primarily due to lower stock-based compensation expense of $1.3 million,approximately $108,000, and lower employee compensation and compensation-related benefits of $0.7 million and lower other general corporate administrative expenses of $0.1 million,approximately $760,000, partially offset by higher consulting and professional fees of $0.5 million.approximately $867,000.

Interest Expense, Net

 

For the three months ended June 30, 2022, our consolidated interest expense was $143,086, excluding amortization of debt discount of $2.1 million and amortization of deferred financing costs of $400,000, and interest income of $42,033. Consolidated interest expense of $3.1 million reflects $3.0 million associated with borrowings from “DSSI”.

For the three months ended June 30, 2021, our consolidated interest expense was $579,182, excluding amortization of debt discount of $2,356,507, amortization of deferred financing costs of $235,401, and interest income of $5,674. Consolidated interest expense of $579,183 reflects $565,479 associated with borrowings under the $30.0 million from “DSSI”.

Litigation Settlements and Other Non-operating Income/Expenses

 

For the three months ended July 31, 2020,June 30, 2022, our net consolidated interest expense was $5,441, excluding amortization of debt discount of $5,121non-operating income include litigation settlements and interestother non-operating income of $1,435. Consolidated interest expense of $5,441 primarily consists of $3,929 associated with borrowings under short-term financing arrangements and $1,512 associated with our convertible notes.

Litigation Settlements and Other Non-operating Expenses

approximately $1.97 million. For the three months ended June 30, 2021, our consolidated non-operating expenses include litigation settlements and other non-operating expenses of $23,605. For the three months ended July 31, 2020, our consolidated non-operating expenses include litigation settlements and other non-operating expenses of $78,822, including a loss of $58,822 from the settlement of legal claims and related legal expenses, and loss on impairment of investments of $20,000.approximately $779,600.

Gain (loss) on employee warrants liability

 

For the three months ended June 30, 2021,2022, we recognized a compensatory gain of $1,134,170,$114,960, compared to a compensatory loss of $1,123,500$1,134,170 for the three months ended July 31, 2020,June 30, 2021, in connection with employee warrants with a variable exercise price after service was completed.

Gain on Extinguishment of Debt

 

In June 2021, the Company’s borrowings under the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) were forgiven pursuant to the CARES Act. The Company recognized a gain on extinguishment of debt of $1.0 million, before income tax, in connection therewith.

 

22

Provision for (Benefit from) Income TaxesTax (Benefit) Provision

 

Income tax (benefit) provision include current and deferred income taxes for both our domestic and foreign operations. Income from our international operations is subject to taxation in the countries in which we operate.

 

We useDuring the recognition and measurement provisions of the FASB ASC Topic 740, Income Taxes (“Topic 740”) to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence should be commensurate with the extent to which it can be objectively verified. As a result, we reviewed the operating results, as well as all positive and negative evidence related to realization of such deferred tax assets to evaluate the need for a valuation allowance in each tax jurisdiction. In evaluating the US and South Korea markets, it was determined a valuation allowance should be placed on each market as ofthree months ended June 30, 2021.

2022, the Company recognized a current federal income tax benefit of $882,692, a provision for deferred federal income taxes of $552,445, and a state and local tax benefit of $9,610. During the three months ended June 30, 2021, the Company recognized a provision for current federal income taxes of $1,445,951, net of a valuation allowance recognized of $1,428,620, a provision for state and local taxes of $19,898, and a deferred income tax benefit of $717,960. During the three months ended July 31, 2020, the Company’s recognized a current provision for federal income taxes of $308,300, a provision for state and local taxes of $117,986 and a deferred income tax benefit of $567,777.

27

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

 

As a result of the foregoing, for the three months ended June 30, 2021,2022, our consolidated net loss was $3.5$1.4 million, compared to $1.0$3.5 million for the three months ended July 31, 2020.June 30, 2021. For the three months ended June 30, 2022, and June 30, 2021, our diluted loss per share was $0.00 and $0.02, compared to $0.01 for the three months ended July 31, 2020.respectively.

Liquidity and Capital Resources

 

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

Working Capital

 

Working capital (total current assets minus total current liabilities) was $35.0$2.0 million and $3.5$7.4 million as of June 30, 2021,2022, and March 31, 2021,2022, respectively,

 

As of June 30, 2021,2022, our cash and cash equivalents were $35.9$14.5 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 over the next 12 months.

Historical Cash Flows

 

Historically, our primary sources of cash have been capital transactions involving the issuance of equity securities and secured and unsecured debt (See “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 three months ended June 30, 2021,2022, compared to the three months ended July 31, 2020:June 30, 2021:

 

  Three Months Ended 
  June 30, 2021  July 31, 2020  Increase (Decrease) 
Net cash used in operating activities $(6,017,388) $(3,704,483) $2,312,905 
Net cash used in investing activities  (234,658)  (20,748)  213,910 
Net cash provided by financing activities  30,000,000   4,040,400   25,959,600 
Impact of currency rate changes in cash  26,304   -   26,304 
Net increase in cash and cash equivalents $23,774,258  $315,169  $23,459,089 

  Three Months Ended June 30, 
  2022  2021  Increase (Decrease) 
Net cash used in operating activities $(3,776,508) $(6,017,388) $2,240,880 
Net cash used in investing activities  (136,807)  (234,658)  97,851
Net cash provided by financing activities  1,373,681  30,000,000   (28,626,319)
Impact of currency rate changes in cash  (30,140)  26,304   (56,444)
Net (decrease) increase in cash and cash equivalents $(2,569,774) $23,774,258  $(26,344,032)

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Net Cash Used in Operating Activities

 

For the three months ended June 30, 2021,2022, net cash used in operating activities was $6.0$3.8 million, compared to $3.7net cash used in operating activities of $6.0 million for the three months ended July 31, 2020.June 30, 2021. The $2.3$2.2 million change was due to a decreasedecline in profitability, of $4.8 million, excluding non-cash items, such as depreciation and amortization, stock-based compensation expense, provision for obsolete inventory losses, amortization of debt discount, losses on impairment of investments in unconsolidated entities and a note receivable, and estimated settlement liability. ThisIn addition, the change was partially offset byin net changescash used in operating activities reflects a change in operating assets and liabilities of $2.5$1.3 million.

Net Cash Used in Investing Activities

 

For the three months ended June 30, 2021,2022, net cash used in investing activities was $234,658,$136,807, compared to $20,748$234,658 for the three months ended January 31, 2020.June 30, 2021. The $213,910$97,851 change was due to higherlower capital expenditures and capitalizable costs related to ongoing upgrades to our information technology systems of $183,682 and lower collection of notes receivable of $38,628, partially offset by lower payments for intangible assets of $8,400.systems.

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Net Cash Provided by Financing Activities

 

For the three months ended June 30, 2021,2022, net cash provided byused in financing activities increaseddecreased by $26.0$28.6 million, to $30.0$1.4 million, compared to $4.0$30.0 million for the three months ended July 31, 2020. The $26.0 million increase was mainlyJune 30, 2021, primarily due to higher net proceeds ($29.0 million)refinancing of borrowings under short-term financing arrangements and/or convertible promissory notes (including borrowings fromthe April 2021 DSSI in the three months ended June 30 2021), partially offset by proceeds from issuances of stock of $3.0 million in 2020.loan.

Impact of currency rate changes in cash

 

For the three months ended June 30, 2022, the impact of currency rate changes in cash was $30,140, compared to $26,304 for the three months ended June 30, 2021. Prior to April 1, 2021, substantially all our consolidated net sales were denominated in U.S. dollars. Effective April 1, 2021, the Company’s consolidated financial statements reflect the operation of our wholly owned subsidiaries operating in the Asia Pacific region. See Note 12 of the Notes to Condensed Consolidated Financial Statements contained elsewhere in this Quarterlyour Annual Report on Form 10-K for the fiscal year ended March 31, 2022, for information about our translation of foreign currency financial statements.

Legal Proceedings

 

The information contained in Note 10,15, COMMITMENTS AND CONTINGENCIES - Legal Matters,Proceedings, of the Notes to Condensed Consolidated Financial Statements located elsewhere in this Quarterly Report is incorporated herein by reference.

Potential Future Acquisitions

 

The Company, directly and through its subsidiaries, may make strategic acquisitions and purchases of equity interests in businesses that complement its business competencies and growth strategy. Such acquisitions and purchases of equity interests are expected to be funded with cash and cash equivalents, cash provided by operations, if any, and issuance of equity securities and debt.

Recent Issuances of Equity Securities

Common Stock

During the three months ended January 31, 2021:

●the Company issued to DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan Origination Fee discussed above and 12,000,000 shares in prepayment of interest for the first year in connection with the related party loan discussed below, and
●the Company issued: (i) 10,000 shares of its Class A Common Stock upon the conversion of 10,000 shares of the its Series C preferred stock.

Short-term Borrowings and Convertible Notes

Borrowing Under Financing Arrangements (Note Payable)

 

In May 2020, the Company was granted a loan (the “PPP Loan”) by a commercial bank in the amount of $1.0 million, pursuant to the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”). The Company’s borrowings under the PPP Loan were eligible for loan forgiveness under the provisions of the CARES Act. In June 2021, the Company was formally notified by the lender that the Company’s obligations under the loan have been forgiven effective May 25, 2021. The loan forgiveness applies to all principal and interest accrued through the loan forgiveness effective date. See Note 1, Description of Operations and Basis of Presentation – Note Payable, of the Notes to Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report for more information about the PPP Loan.

 

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Convertible Notes from Related Parties

Decentralized Sharing Systems, Inc.

 

On April 5, 2021, the Company and Decentralized Sharing Systems, Inc. (“DSSI”) which, together with DSS, Inc., is a majority shareholder of the Company, entered into a Securities Purchase Agreement, pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share, and DSSI loaned to the Company $30.0 million. Under the terms of the loan, the Company agreed to pay to DSSI a loan Origination Fee of $3.0 million, payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. The Note bears interest at the annual rate of 8% and matures on April 5, 2024, subject to certain acceleration provisions upon the occurrence of an Event of Default, as defined in the Note. At any time during the term of the Note, all or part of the Note, including principal, less unamortized prepaid interest, if any, plus any accrued interest and other fees can be convertedwas convertible into shares of the Company’s Class A Common Stock at the rate of $0.20 per share, at the option of the holder.

On June 15, 2022, the Company and DSSI entered into an agreement pursuant to which the Company issued to DSSI: (a) a two-year Convertible, Advancing Promissory Note in the principal amount of $27.0 million (the “2022 Note”) in favor of DSSI and (b) a detachable Warrant to purchase up to 818,181,819 shares of the Company’s Class A Common Stock at the exercise price of $0.033 per share. The 2022 Note bears interest at the annual rate of 8% and is due and payable on demand or, if no demand, on May 1, 2024. At any time during the term of the 2022 Note, all or part of the Note may be converted into up to 818,181,819 shares of the Company’s Class A Common Stock, at the option of the holder. Under the terms of the agreement, the Company paid to DSSI a loan origination fee of $270,000, and DSSI surrendered to the Company all DSSI’s rights pursuant to the Convertible Promissory Note in the principal amount of $30.0 million issued by the Company in April 2021 and the detachable Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share, issued concurrently with such $30.0 million note, as discussed in the preceding paragraph.

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American Pacific Bancorp, Inc.

On June 15, 2022, Linden Real Estate Holdings, LLC, a wholly owned subsidiary of the Company, American Pacific Bancorp, Inc. (“APB”), a subsidiary of DSS, and the Company entered a Loan Agreement pursuant to which APB loaned the Company approximately $5.7 million. The loan bears interest at the annual rate of 8%, matures on June 1, 2024, and is secured by a first mortgage interest on the Company’s Lindon, Utah office building. In connection with this loan, the Company received net proceeds of $5,522,829 from APB. Heng Fai Ambrose Chan and Frank D. Heuszel, each a Director of the Company, also serve on the Board of Directors of APB.

HWH International, Inc.

 

In October 2017, the Company issued a Convertible Promissory Note in the principal amount of $50,000 (the “Note”) to HWH International, Inc (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Company. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. As of the date of this Quarterly Report,On August 9, 2022, HWH and the Company and HWH are jointly reviewingexecuted an agreement to settle the Note and cancel the detachablerelated stock warrant.warrant for $78,636, which amount represents the principal plus accrued interest. The number of shares thatCompany made the payment to HWH may acquire upon conversion of the HWH Note and exercise of the detachable warrant may be greater than the amounts described in this paragraph, depending on the results of such review.

Convertible Note Payable, OtherAugust 9, 2022.

 

As of June 30, 2021, convertible notes payable also include a note in the amount of $100,000 held by an unaffiliated lender. As of the date of this Quarterly Report, the Company and the holder of the note are discussing options for the note holder to convert a portion of the note and for the Company to settle the remainder of the note. The Company intends to conclude these discussions and to settle the April 2018 Note in the foreseeable future. See Note 4 of the Notes to Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report for more information.

Capital Requirements

 

During the three months ended June 30, 2021,2022, 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 $33,393.$136,807.

Contractual Obligations

 

There were no material changes to our contractual cash obligations during the three months ended June 30, 2021,2022, except for (a) the June 2022 refinancing of our repayment of borrowings under short-termloan from DSSI and (b) the June 2022 financing arrangements and convertible notesor our Lindon, Utah office building, as described above.

Off-Balance Sheet Financing Arrangements

 

As of June 30, 2021,2022, we had no off-balance sheet financing arrangements.

Inflation

 

We believeIn recent history, inflation did not have a material effect on our resultshas generally been low in the geographies where we operate. However, at the time of operations during the periods presented in this Quarterly Report.Report, the increase in price of consumer goods in the United States has reached a 40-year high, primarily as a result of higher energy costs, higher housing costs, and the impact global supply chain disruptions. Please see “Our business and financial performance could be adversely affected by inflation” contained in ITEM 1A, — “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

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Critical Accounting Estimates

 

While the Company is not aware of material changes to its critical accounting estimates or assumptions since March 31, 2021,2022, it is reasonably possible that estimates made in the Company’s unaudited condensed consolidated financial statements have been, or will be, materially impacted as a result of the ultimate resolution of the uncertainties associated with the COVID health crisis. This may include estimates regarding losses onallowance for slow-moving or obsolete inventory, impairment losses related to long-lived assets, the nature and timing of satisfaction of performance obligations resulting from contracts with customers, and the valuation of loss contingencies. Please see Overview - SignificantContinuing Uncertainty Regarding the Potential Impact of OngoingRecent COVID Health CrisisPandemic above.

 

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Accounting Changes and Recent Accounting Pronouncements

 

For discussion of accounting changes and recent accounting pronouncements, see Note 12 of the Notes to Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report.

 

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.

Evaluation of Disclosure Controls Evaluation and Related CEO and CFO Certifications. Procedures.Our management, with the participation of our principal executive officerChief Executive Officer (“CEO”) and principal financial officerour Chief Financial Officer (“CFO”), conducted an evaluation ofevaluated the effectiveness of the design and operation of our disclosure controls and procedures, as of June 30, 2021.

Certifications of our CEO and our CFO, which are requireddefined in accordance with Rule 13a-1413a-15(e) of the Exchange Act, are attached as exhibitsof the end of the fiscal period covered by this Annual Report, and concluded that, as of June 30, 2022, the Company’s disclosure controls and procedures were effective in providing reasonable assurance that information required to this Quarterly Report. This “Controlsbe disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized and Procedures” section discussesreported within the above-described Certificationstime periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the evaluationCompany’s management and its Board of “disclosure controls” referredDirectors, as appropriate to therein. Accordingly, this section should be read in conjunction with such Certifications.allow timely decisions regarding required disclosure.

Limitations on the Effectiveness of Controls.Company’s Controls and Procedures. 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 behave been detected. Furthermore, because the design of any system of disclosure controls and procedures is based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.conditions, regardless of how unlikely. 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.

ScopeIn light of the Controls Evaluation. Form 10-K/A filed by the Company with the Securities Exchange Commission (SEC) on July 7, 2022, for the purpose of correcting a typographical error included in its Consolidated Statements of Changes in Stockholders’ Equity for fiscal years ended March 31, 2022 and 2021, management determined that the Company had a significant deficiency in its internal control over financial reporting. The above-described evaluationsignificant deficiency was attributable mainly to our failure to effectively review and proofread the registration statement, detect and correct any errors before it was filed with the SEC. To address this significant deficiency, procedures have been developed and implemented by the accounting department in August 2022, to ensure the timely review, proof reading and sign-off of our disclosure controls and procedures included a review of (a)all registration statements prior to their objectives and design, (b) our implementation ofsubmission to 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 Reports on Form 10-Q and our Annual Report on Form 10-K.SEC.

Conclusions regarding Disclosure Controls. Based upon the aforementioned evaluation of our disclosure controls and procedures, our CEO and CFO concluded that, as of June 30, 2021, 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. DuringExcept for the remedial actions described above, 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.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

 

The information contained in Note 10,15, COMMITMENTS AND CONTINGENCIES - Legal Matters,Proceedings, of the Notes to Unaudited Condensed Consolidated Financial Statements located elsewhere in this Quarterly Report is incorporated herein by reference.

 

Item 1A. Risk Factors.

 

The factors contained in ITEM 1A, — “Risk Factors” in our TransitionAnnual Report on Form 10-K for the fiscal year ended March 31, 2021,2022, are incorporated herein by reference.

 

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

 

(a) Unregistered Sales of Securities

 

In the three months ended June 30, 2021, Company issued to Decentralized Sharing Systems, Inc. 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan Origination Fee discussed above and 12,000,000 shares in prepayment of interest for the first year in connection with the related party loan discussed elsewhere in this Quarterly Report.

In addition, in the three months ended June 30, 2021, the Company issued 10,000 shares of its Class A Common Stock upon the conversion of 10,000 shares of the Company’s Series C preferred stock.

In connection with the transactions described in the preceding two paragraphs, no underwriters were involved, there were no proceeds generated, and the issuances were made in reliance on the exemption from the registration requirements of the Securities Act of 1933 provided under Section 4(a)(2) thereof.None

 

(b) Not applicable

 

(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None

Item 3. Defaults Upon Senior Securities.

 

(a) Not applicable

 

(b) Not applicable

 

Item 4. Mining Safety Disclosures.

 

Not applicable

 

Item 5. Other Information.

 

None

 

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Item 6. Exhibits.

 

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

 

3.1 SecondThird Amended and Restated Articles of Incorporation of Sharing Services Global Corporation, which is incorporated herein by reference from Exhibit A to the Company’s 20212022 Proxy Statement on Schedule 14A filed on July 14, 20212022
   
3.2 Bylaws of Sharing Services Global Corporation, which is incorporated herein by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 24, 2019
   
4.1 Certificate of Designation of Series A Preferred Stock, which is incorporated herein by reference from Exhibit 3.1.2 to the Company’s Current Report on Form 8-K filed on May 8, 2017
   
4.2 Certificate of Designation of Series C Preferred Stock, which is incorporated herein by reference from Exhibit 3.1.4 to the Company’s Current Report on Form 8-K filed on May 8, 2017
   
4.3 Convertible Promissory Note dated April 13, 2018, issued by Sharing Service, Inc. in favor of RB Capital Partners, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on April 19, 2018
   
4.4 Convertible Promissory Note dated April 5, 2021, issued by Sharing Service Global Corporation in favor of Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 1.2 to the Company’s Current Report on Form 8-K filed on April 9, 2021
   
4.5 Warrant to Purchase Shares of Sharing Services Global Corporation’s Class A Common Stock issued to Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 1.3 to the Company’s Current Report on Form 8-K filed on April 9, 2021
4.6Warrant to Purchase Shares of Sharing Services Global Corporation’s Class A Common Stock, which is incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 29, 2021
4.7Warrant to Purchase Shares of Sharing Services Global Corporation’s Class A Common Stock, which is incorporated herein by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 27, 2022
4.8Form of Convertible Promissory Note issued, in June 2022, by Sharing Service Global Corporation in favor of Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 4.8 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
4.9Form of Warrant to Purchase Shares of Sharing Services Global Corporation’s Class A Common Stock issued, in June 2022, by Sharing Service Global Corporation to Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 4.9 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
   
10.1 Amended and Restated Executive Employment Agreement effective as of May 16, 2019, between John “JT” Thatch and Sharing Service Global Corporation, which is incorporated herein by reference from Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed on March 12, 2020
10.2Multi-Party Settlement Agreement, effective as of February 28, 2020, by and between Sharing Services Global Corporation and relevant subsidiaries, Robert Oblon, Jordan Brock, certain officers and directors of Sharing Services Global Corporation, and certain other corporate parties, which is incorporated herein by reference from Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed on July 8, 2020
10.3U. S. Small Business Administration Note dated May 13, 2020, issued by Sharing Services Global Corporation in favor of Prosperity Bank, which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on May 18, 2020
   
10.410.2 Stock Purchase and Share Subscription Agreement dated as of July 22, 2020, by and between Sharing Services Global Corporation and Heng Fai Ambrose Chan, which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on July 24, 2020

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10.3 
10.5Settlement Accommodation Agreement [Including Stock Disposition and Release Provisions] dated July 22, 2020, by and between Sharing Services Global Corporation, Bear Bull Market Dividends, Inc., Kenyatto Montez Jones, and MLM Mafia, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on July 30, 2020
10.4 
10.6Executive Employment Agreement by and between S. Mark Nicholls and Sharing Services Global Corporation Effective as of February 1, 2021, which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on January 21, 2021
10.7Securities Purchase Agreement dates as of April 5, 2021, by and among Sharing Service Global Corporation and Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on April 9, 2021
   
10.810.5 Stock Purchase and Share Subscription Agreement dated as of December 23, 2021 by and among Sharing Service Global Corporation and Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 29, 2021
10.6Business Consulting Agreement dated January 24, 2022 by and between Sharing Service Global Corporation and DSS, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on January 27, 2022
10.7Form of Distributor Agreement of The Happy Co., which is incorporated herein by reference from Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed on June 10, 2021
   
10.910.8 2021 The Happy Co. Brand Partner Compensation Plan, which is incorporated herein by reference from Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed on June 10, 2021
10.9Form of Securities Purchase Agreement entered into, in June 2022, by and among Sharing Services Global Corporation, and the Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 10.9 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
10.10Form of Security Agreement made, in June 2022, by Sharing Service Global Corporation in favor of Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 10.10 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
10.11Form of Loan Agreement entered into, in June 2022,by and between LINDEN REAL ESTATE HOLDINGS, LLC and AMERICAN PACIFIC BANCORP, INC., which is incorporated herein by reference from Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
10.12Form of DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT made, in June 2022, by LINDEN REAL ESTATE HOLDINGS, LLC in favor of Cottonwood Title Insurance Agency, Inc., for the benefit of American Pacific Bancorp, Inc., which is incorporated herein by reference from Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
10.13Form of Demand Promissory Note issued, in June 2022, by LINDEN REAL ESTATE HOLDINGS, LLC in favor of AMERICAN PACIFIC BANCORP, INC., which is incorporated herein by reference from Exhibit 10.13 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
   
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
   
31.2 Certification of Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
   
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
   
32.2 Certification of Interim Chief Financial Officer 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 June 30, 2021,2022 and July 31, 2020,2021, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of EarningsOperations and Comprehensive Income;Income (Loss); (iii) the Condensed Consolidated Statements of Cash Flows and (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity *

*Included herewith

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 SHARING SERVICES GLOBAL CORPORATION
 (Registrant)
   
Date: August 16, 202115, 2022  
   
 By:/s/ John Thatch
  John Thatch
  President, Chief Executive Officer and Vice Chairman of the Board of Directors
  (Principal Executive Officer)
   
Date: August 16, 202115, 2022  
   
 By:/s/ John ThatchAnthony S. Chan
  John ThatchAnthony S Chan
  Interim Chief Financial Officer
  (Principal Financial Officer)

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