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: December 31, 2022September 30, 2023
ORor
☐ 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 | (I.R.S. Employer |
| 5200 Tennyson Parkway, Suite 400, Plano, Texas | 75024 | |
| (Address of principal executive offices) | (Zip Code) |
(469) 304-9400
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| 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 February 6,November 9, 2023, there were shares of the issuer’s Class A Common Stock outstanding.
TABLE OF CONTENTS
| 2 |
In this Quarterly Report, references to “the Company,” “Sharing Services,” “our company,” “we,” “our,” “ours,” and “us” refer to Sharing Services 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 sheetsheets as of December 31, 2022,September 30, 2023, and condensed consolidated statements of operations and comprehensive loss, for the three and nine months ended December 31, 2022 and 2021, condensed consolidated statements of cash flows, and condensed consolidated statements of changes in stockholders’ equity (deficit)deficit for the ninesix months ended December 31,September 30, 2023 and 2022, and 2021, are those of Sharing Services Global Corporation and its subsidiaries.
Index to Unaudited Condensed Consolidated Financial Statements
| 4 |
SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2023 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 1,385,339 | $ | 2,994,885 | ||||
| Trade accounts receivable, net | 434,214 | 273,674 | ||||||
| Other receivable | 1,800,000 | - | ||||||
| Inventory, net | 2,201,010 | 1,636,120 | ||||||
| Other current assets, net | 222,407 | 527,827 | ||||||
| Total Current Assets | 6,042,970 | 5,432,506 | ||||||
| Property and equipment, net | 377,652 | 9,270,193 | ||||||
| Right-of-use assets, net | 426,297 | 448,240 | ||||||
| Investment in unconsolidated entities, net | - | 206,231 | ||||||
| Intangible assets | 473,723 | 545,372 | ||||||
| Other assets | 1,183,946 | 1,177,173 | ||||||
| TOTAL ASSETS | $ | 8,504,588 | $ | 17,079,715 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 1,059,916 | $ | 1,028,510 | ||||
| Accrued and other current liabilities | 2,388,171 | 2,781,037 | ||||||
| Accrued sales commission payable | 1,867,283 | 2,357,643 | ||||||
| State and local taxes payable | 1,491,633 | 1,446,503 | ||||||
| Federal income taxes payable | 2,471 | - | ||||||
| Note payable - related party, net of unamortized debt discount and unamortized deferred loan cost | - | 6,922,043 | ||||||
| Loan payable | 1,200,000 | - | ||||||
| Convertible notes payable, related parties, net of unamortized debt discount and unamortized deferred loan cost of $2,172,914 as of March 31, 2023 | - | 24,827,086 | ||||||
| Total Current Liabilities | 8,009,474 | 39,362,822 | ||||||
| Lease liability – non-current | 416,277 | 440,478 | ||||||
| TOTAL LIABILITIES | 8,425,751 | 39,803,300 | ||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock, $ par value, shares authorized: | ||||||||
| Series A convertible preferred stock, $ par value, shares designated, shares issued and outstanding as of September 30, 2023 and March 31, 2023 | 310 | 310 | ||||||
| Series B convertible preferred stock, $ par value, shares issued and outstanding | - | - | ||||||
| Series C convertible preferred stock, $ par value, shares designated, shares issued and outstanding as of September 30, 2023 and March 31, 2023 | 322 | 322 | ||||||
| Series D preferred stock, $ par value, shares authorized and issued as of September 30, 2023 | 3 | - | ||||||
| Preferred stock value | ||||||||
| Class A common stock, $ par value, shares designated, shares and shares issued and outstanding as of September 30, 2023 and March 31, 2023, respectively | 37,633 | 34,745 | ||||||
| Class B common stock, $ par value, shares designated, shares issued and outstanding | - | - | ||||||
| Common stock value | - | - | ||||||
| Treasury Stock, shares, at cost | - | (626,187 | ) | |||||
| Additional paid in capital | 110,699,858 | 84,619,762 | ||||||
| Shares to be issued | 12,146 | 12,146 | ||||||
| Accumulated deficit | (110,335,526 | ) | (106,456,378 | ) | ||||
| Accumulated other comprehensive loss | (335,909 | ) | (308,305 | ) | ||||
| Total Stockholders’ Equity (Deficit) | 78,837 | (22,723,585 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 8,504,588 | $ | 17,079,715 | ||||
December 31, 2022 | March 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 3,112,225 | $ | 17,023,266 | ||||
| Trade accounts receivable, net | 1,790,522 | 1,682,958 | ||||||
| Income taxes receivable | - | 300,000 | ||||||
| Inventory, net | 2,728,131 | 4,374,236 | ||||||
| Notes receivable, net | 216,885 | - | ||||||
| Other current assets, net | 551,828 | 3,511,282 | ||||||
| Total Current Assets | 8,399,591 | 26,891,742 | ||||||
| Property and equipment, net | 9,437,544 | 9,585,141 | ||||||
| Right-of-use assets, net | 458,768 | 593,389 | ||||||
| Deferred income taxes, net | - | 81,205 | ||||||
| Investment in unconsolidated entities, net | 178,727 | 5,063,940 | ||||||
| Investment in marketable securities | 4,251,225 | - | ||||||
| Intangible assets, net | 581,219 | 688,670 | ||||||
| Other assets | 1,183,749 | 260,637 | ||||||
| TOTAL ASSETS | $ | 24,490,823 | $ | 43,164,724 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | 868,008 | $ | 985,139 | |||||
| Accrued sales commission payable | 2,548,285 | 3,745,481 | ||||||
| Employee stock warrants liability | 148,266 | 452,050 | ||||||
| State and local taxes payable | 1,421,564 | 1,339,366 | ||||||
| Note payable, related party, net of unamortized debt discount and unamortized deferred loan cost of $602,414 as of December 31, 2022 | 11,026,526 | - | ||||||
| Accrued and other current liabilities | 3,439,828 | 3,079,782 | ||||||
| Convertible notes payable, related parties, net of unamortized debt discount and unamortized deferred loan cost of $14,866,710 as of December 31, 2022 and $20,151,230 as of March 31, 2022, respectively | 12,133,290 | 9,898,770 | ||||||
| Total Current Liabilities | 31,585,767 | 19,500,588 | ||||||
| Settlement liability, long term portion | - | 373,677 | ||||||
| Lease liability, long-term | 413,587 | 461,515 | ||||||
| TOTAL LIABILITIES | 31,999,354 | 20,335,780 | ||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock, $ par value, shares authorized: | ||||||||
| Series A convertible preferred stock, $ par value, shares designated, shares issued and outstanding as of December 31, 2022, and March 31, 2022, respectively | 310 | 310 | ||||||
| Series B convertible preferred stock, $ par value, shares issued and outstanding at December 31 and March 31, 2022 | - | - | ||||||
| Series C convertible preferred stock, $ par value, shares designated, shares issued and outstanding at December 31 and March 31, 2022, respectively | 322 | 322 | ||||||
| Preferred stock value | 322 | 322 | ||||||
| Class A common stock, $ par value, shares designated, shares and shares issued and outstanding at December 31 and March 31, 2022, respectively | 26,283 | 28,892 | ||||||
| Class B common stock, $ par value, shares designated, shares issued and outstanding | - | - | ||||||
| Treasury Stock, shares, at cost | (626,187 | ) | - | |||||
| Additional paid in capital | 81,950,753 | 80,738,719 | ||||||
| Shares to be issued | 12,146 | 12,146 | ||||||
| Accumulated deficit | (88,650,199 | ) | (57,886,336 | ) | ||||
| Accumulated other comprehensive loss | (221,959 | ) | (65,109 | ) | ||||
| Total Stockholders’ Equity (Deficit) | (7,508,531 | ) | 22,828,944 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 24,490,823 | $ | 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)
December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||||
| Net sales | $ | 3,245,903 | $ | 7,110,532 | $ | 12,737,673 | $ | 28,195,359 | ||||||||
| Cost of goods sold | 1,643,111 | 2,328,583 | 5,059,916 | 8,606,833 | ||||||||||||
| Gross profit | 1,602,792 | 4,781,949 | 7,677,757 | 19,588,526 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing expenses | 928,246 | 4,219,080 | 5,723,642 | 14,391,715 | ||||||||||||
| General and administrative expenses | 4,678,620 | 3,612,803 | 13,787,444 | 13,881,814 | ||||||||||||
| Total operating expenses | 5,606,866 | 7,831,883 | 19,511,086 | 28,273,529 | ||||||||||||
| Operating loss | (4,004,074 | ) | (3,049,934 | ) | (11,833,329 | ) | (8,685,003 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | (3,320,159 | ) | (3,112,039 | ) | (9,761,622 | ) | (9,168,411 | ) | ||||||||
| Gain on employee warrants liability | 39,375 | 154,487 | 207,210 | 1,935,588 | ||||||||||||
| Gain on extinguishment of debt | - | - | - | 1,040,400 | ||||||||||||
| Unrealized gain (loss) on investment | (3,614,242 | ) | 1,201,510 | (10,284,002 | ) | 3,328,483 | ||||||||||
| Other non-operating income (expense), net | (21,722 | ) | (309,113 | ) | 118,077 | (335,163 | ) | |||||||||
| Total other income (expense), net | (6,916,748 | ) | (2,065,155 | ) | (19,720,337 | ) | (3,199,103 | ) | ||||||||
| Loss before income taxes | (10,920,822 | ) | (5,115,089 | ) | (31,553,666 | ) | (11,884,106 | ) | ||||||||
| Income tax provision (benefit) | 104,129 | 1,825,073 | (789,803 | ) | 1,318,827 | |||||||||||
| Net loss | $ | (11,024,951 | ) | $ | (6,940,162 | ) | $ | (30,763,863 | ) | $ | (13,202,933 | ) | ||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||
| Currency translation adjustments | 251,166 | (118,860 | ) | (156,850 | ) | (94,887 | ) | |||||||||
| Total other comprehensive income (loss) | 251,166 | (118,860 | ) | (156,850 | ) | (94,887 | ) | |||||||||
| Comprehensive loss | (10,773,785 | ) | (7,059,022 | ) | (30,920,713 | ) | (13,297,820 | ) | ||||||||
| Loss per share: | ||||||||||||||||
| Basic and diluted | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.12 | ) | $ | (0.07 | ) | ||||
| Weighted average shares: | ||||||||||||||||
| Basic and diluted | 262,832,833 | 192,112,139 | 267,956,183 | 188,051,336 | ||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Net sales | $ | 2,408,704 | $ | 4,188,152 | $ | 5,286,825 | $ | 9,491,770 | ||||||||
| Cost of goods sold | 669,803 | 1,759,776 | 1,515,632 | 3,416,804 | ||||||||||||
| Gross profit | 1,738,901 | 2,428,376 | 3,771,193 | 6,074,966 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing expenses | 743,057 | 2,037,596 | 2,164,545 | 4,795,396 | ||||||||||||
| General and administrative expenses | 2,116,240 | 4,557,922 | 4,403,312 | 9,108,825 | ||||||||||||
| Total operating expenses | 2,859,297 | 6,595,518 | 6,567,857 | 13,904,221 | ||||||||||||
| Operating loss | (1,120,396 | ) | (4,167,142 | ) | (2,796,664 | ) | (7,829,255 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | (1,963,267 | ) | (3,321,410 | ) | (2,869,077 | ) | (6,441,464 | ) | ||||||||
| Other income | 1,800,000 | - | 1,800,000 | - | ||||||||||||
| Gain on employee warrants liability | - | 52,875 | - | 167,835 | ||||||||||||
| Loss on extinguishment of debt | (188,842 | ) | - | (38,209 | ) | - | ||||||||||
| Unrealized loss on investment | - | (11,553,933 | ) | (78,632 | ) | (6,669,760 | ) | |||||||||
| Other non-operating income, net | 5,613 | 49,632 | 103,434 | 139,799 | ||||||||||||
| Total other expense, net | (346,496 | ) | (14,772,836 | ) | (1,082,484 | ) | (12,803,590 | ) | ||||||||
| Loss before income taxes | (1,466,892 | ) | (18,939,978 | ) | (3,879,148 | ) | (20,632,845 | ) | ||||||||
| Income tax benefit | (12,102 | ) | (554,075 | ) | - | (893,932 | ) | |||||||||
| Net loss | $ | (1,454,790 | ) | $ | (18,385,903 | ) | $ | (3,879,148 | ) | $ | (19,738,913 | ) | ||||
| Other comprehensive loss, net of tax: | ||||||||||||||||
| Currency translation adjustments | (22,435 | ) | (263,751 | ) | (27,604 | ) | (408,017 | ) | ||||||||
| Total other comprehensive loss | (22,435 | ) | (263,751 | ) | (27,604 | ) | (408,017 | ) | ||||||||
| Comprehensive loss | $ | (1,477,225 | ) | $ | (18,649,654 | ) | $ | (3,906,752 | ) | $ | (20,146,930 | ) | ||||
| Loss per share: | ||||||||||||||||
| Basic | $ | (0.004 | ) | $ | (0.07 | ) | $ | (0.01 | ) | $ | (0.07 | ) | ||||
| Diluted | $ | (0.004 | ) | $ | (0.07 | ) | $ | (0.01 | ) | $ | (0.07 | ) | ||||
| Weighted average shares: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
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)
December 31, 2022 | December 31, 2021 | |||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Nine Months Ended | Six Months Ended | |||||||||||||||
December 31, 2022 | December 31, 2021 | September 30, 2023 | September 30, 2022 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net loss | $ | (30,763,863 | ) | (13,202,933 | ) | $ | (3,879,148 | ) | $ | (19,738,913 | ) | |||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
| Depreciation and amortization | 539,411 | 341,775 | 307,499 | 335,571 | ||||||||||||
| Stock-based compensation gain | (303,784 | ) | (1,502,195 | ) | ||||||||||||
| Deferred income tax benefit | - | (3,977,918 | ) | |||||||||||||
| Stock-based compensation | (148,267 | ) | (152,381 | ) | ||||||||||||
| Amortization of debt discount and other | 10,447,435 | 9,173,753 | 2,015,542 | 6,994,167 | ||||||||||||
| Gain on extinguishment of debt | (350,320 | ) | (1,040,400 | ) | ||||||||||||
| Loss (gain) on extinguishment of debt | 38,209 | (350,320 | ) | |||||||||||||
| Intangible asset impairment | 154,182 | - | - | 154,182 | ||||||||||||
| Bad debt expense | (85,155 | ) | - | 177,115 | 107,800 | |||||||||||
| Unrealized loss (gain) on investments | 10,284,002 | (2,114,970 | ) | |||||||||||||
| Realized/unrealized gain on investments | - | 6,669,760 | ||||||||||||||
| Provision for obsolete inventory | 1,012,433 | 448,484 | 2,112 | 433,714 | ||||||||||||
| Non-cash income | (1,800,000 | ) | - | |||||||||||||
| Changes in operating assets and liabilities: | - | |||||||||||||||
| Accounts receivable | (22,413 | ) | (101,829 | ) | (337,659 | ) | (182,343 | ) | ||||||||
| Inventory | 892,136 | (2,847,188 | ) | (784,928 | ) | 514,591 | ||||||||||
| Other current assets | 321,291 | (477,706 | ) | 742,337 | 422,894 | |||||||||||
| Other assets | (137,112 | ) | (1,941 | ) | - | (153,324 | ) | |||||||||
| Accounts payable | 669,048 | (631,412 | ) | 57,396 | 762,392 | |||||||||||
| Income taxes payable | (496,026 | ) | 5,181,561 | - | (577,235 | ) | ||||||||||
| Lease liability | 35,008 | (7,523 | ) | 768 | 17,541 | |||||||||||
| Accrued and other liabilities | (1,042,211 | ) | (2,418,406 | ) | 638,717 | (694,905 | ) | |||||||||
| Net Cash Used in Operating Activities | $ | (8,845,938 | ) | $ | (13,178,848 | ) | (2,970,305 | ) | (5,436,809 | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
| Payments for property and equipment and other assets | (1,404,013 | ) | (9,162,617 | ) | - | (1,352,792 | ) | |||||||||
| Issuance of notes receivable | (216,885 | ) | (118,689 | ) | - | (241,942 | ) | |||||||||
| Purchase of marketable securities | (9,510,000 | ) | - | - | (9,510,000 | ) | ||||||||||
| Collection of notes receivable | - | 5,000 | ||||||||||||||
| Cash paid for asset purchase | (400,000 | ) | (2,937,000 | ) | - | (400,000 | ) | |||||||||
| Net Cash Used in Investing Activities | (11,530,898 | ) | (12,213,306 | ) | - | (11,504,734 | ) | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
| Retirement of loan | (3,374,416 | ) | - | |||||||||||||
| Net proceeds from issuance of promissory notes | 10,922,329 | 30,000,000 | - | 10,922,329 | ||||||||||||
| Proceeds from loan payable | 1,200,000 | - | ||||||||||||||
| Common stock received on litigation settlement | (1,046,254 | ) | - | - | (1,046,254 | ) | ||||||||||
| Proceeds from issuance of common stock | 3,073,607 | |||||||||||||||
| Proceeds from convertible notes | - | |||||||||||||||
| Retirement of loans | - | (3,348,811 | ) | |||||||||||||
| Net Cash Provided by Financing Activities | 6,501,659 | 33,073,607 | 1,200,000 | 6,527,264 | ||||||||||||
| IMPACT OF CURRENCY RATE CHANGES ON CASH | (35,864 | ) | (45,331 | ) | 160,759 | (150,122 | ) | |||||||||
| Increase (decrease) in cash and cash equivalents | (13,911,041 | ) | 7,636,122 | |||||||||||||
| Decrease in cash and cash equivalents | (1,609,546 | ) | (10,564,401 | ) | ||||||||||||
| Cash and cash equivalents, beginning of period | 17,023,266 | 12,144,409 | 2,994,885 | 17,023,266 | ||||||||||||
| Cash and cash equivalents, end of period | $ | 3,112,225 | $ | 19,780,531 | $ | 1,385,339 | $ | 6,458,865 | ||||||||
| Supplemental cash flow information | ||||||||||||||||
| Cash paid for interest | $ | 127,790 | $ | 52,331 | $ | 24,279 | $ | 127,790 | ||||||||
| Cash paid for income taxes | $ | - | $ | 47,412 | $ | 550 | $ | - | ||||||||
| Supplemented disclosure of non-cash investing and financing activities: | ||||||||||||||||
| Stock issued for financing fees and prepaid interest on debt | $ | - | $ | 5,400,000 | ||||||||||||
| Investment origination fee collected in shares of investee stock | $ | - | $ | 500,000 | ||||||||||||
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 (DEFICIT)DEFICIT
(Unaudited)
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | Capital | Issued | Stock | Deficit | Loss | Total | ||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Class A and Class B Common Stock | Additional | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Number | Number | Number | Paid | Shares | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||
| of | Par | of | Par | of | Par | of | Par | 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 | - | - | - | - | - | - | - | - | 1,235,516 | - | - | - | 1,235,516 | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of shares of Common Stock | - | - | - | - | (26,091,136 | ) | (2,609 | ) | $ | (23,482 | ) | (626,187 | ) | - | (652,278 | ) | |||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | - | - | - | - | - | - | - | - | (156,850 | ) | (156,850 | ) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | (30,763,863 | ) | - | - | (30,763,863 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance – December 31, 2022 | 3,100,000 | $ | 310 | - | $ | - | 3,220,000 | $ | 322 | 262,832,833 | $ | 26,283 | $ | 81,950,753 | $ | 12,146 | (626,187 | ) | $ | (88,650,199 | ) | - | $ | (221,959 | ) | $ | (7,508,531 | ) | |||||||||||||||||||||||||||||
| Number of Shares | Par Value | Number of Shares | Par Value | Number of Shares | Par Value | Number of Shares | Par Value | Paid in Capital | Shares to be Issued | Accumulated Deficit | Translation Adjustments | Total | |||||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Class A and Class B Common Stock | Additional | Cumulative | ||||||||||||||||||||||||||||||||||||||||||||||||
| Number of Shares | Par Value | Number of Shares | Par Value | Number of Shares | Par Value | Number of Shares | Par Value | Paid in Capital | Shares to be Issued | Accumulated Deficit | Translation Adjustments | Total | |||||||||||||||||||||||||||||||||||||||||
| Balance – March 31, 2021 | 5,100,000 | $ | 510 | - | $ | - | 3,230,000 | $ | 323 | 160,100,769 | $ | 16,010 | $ | 43,757,768 | $ | 12,146 | - | $ | (37,627,718 | ) | $ | - | $ | 6,159,039 | |||||||||||||||||||||||||||||
| Beginning balance | 5,100,000 | $ | 510 | - | $ | - | 3,230,000 | $ | 323 | 160,100,769 | $ | 16,010 | $ | 43,757,768 | $ | 12,146 | - | $ | (37,627,718 | ) | $ | - | $ | 6,159,039 | |||||||||||||||||||||||||||||
| Common stock issued for cash | - | - | - | - | - | - | 50,000,000 | 5,000 | 5,245,000 | - | (2,250,000 | ) | - | 3,000,000 | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for deferred financing costs and prepaid interest on debt | - | - | - | - | - | - | 27,000,000 | 2,700 | 6,477,300 | - | (1,080,000 | ) | - | 5,400,000 | |||||||||||||||||||||||||||||||||||||||
| Conversions or retirements of preferred stock | (2,000,000 | ) | (200 | ) | - | - | (10,000 | ) | (1 | ) | 10,000 | 1 | 200 | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Issuance of debt with beneficial conversion feature and in-the-money stock warrant, net of tax | - | - | - | - | - | - | - | - | 21,330,000 | - | - | - | 21,330,000 | ||||||||||||||||||||||||||||||||||||||||
| Expiration of common stock puts | - | - | - | - | - | - | - | - | - | - | 177,879 | - | 177,879 | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | - | - | 280,000 | - | - | - | 280,000 | ||||||||||||||||||||||||||||||||||||||||
| Stock warrants exercised | - | - | - | - | - | - | 1,813,200 | 181 | 148,451 | - | - | - | 148,632 | ||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | - | - | - | - | - | - | - | (94,887 | ) | (94,887 | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | (13,202,933 | ) | - | (13,202,933 | ) | |||||||||||||||||||||||||||||||||||||
| Balance – December 31, 2021 | 3,100,000 | $ | 310 | - | $ | - | 3,220,000 | $ | 322 | 238,923,969 | $ | 23,892 | $ | 77,238,719 | $ | 12,146 | - | $ | (53,982,772 | ) | $ | (94,887 | ) | $ | 23,197,730 | ||||||||||||||||||||||||||||
| Ending balance | 3,100,000 | $ | 310 | - | $ | - | 3,220,000 | $ | 322 | 238,923,969 | $ | 23,892 | $ | 77,238,719 | $ | 12,146 | - | $ | (53,982,772 | ) | $ | (94,887 | ) | $ | 23,197,730 | ||||||||||||||||||||||||||||
| of | Par | of | Par | of | Par | of | Par | of | Par | Paid in | to be | Treasury | Accumulated | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Series D | Class A and Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Number | Number | Number | Number | Additional | Shares | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| of | Par | of | Par | of | Par | of | Par | of | Par | Paid in | to be | Treasury | Accumulated | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | Shares | Value | Capital | Issued | Stock | Deficit | Loss | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 | 3,100,000 | $ | 310 | - | $ | - | 3,220,000 | $ | 322 | - | $ | - | 347,451,880 | $ | 34,745 | $ | 84,619,762 | $ | 12,146 | (626,187 | ) | $ | (106,456,378 | ) | $ | (308,305 | ) | $ | (22,723,585 | ) | ||||||||||||||||||||||||||||||||||
| Balance Beginning | 3,100,000 | $ | 310 | - | $ | - | 3,220,000 | $ | 322 | - | $ | - | 347,451,880 | $ | 34,745 | $ | 84,619,762 | $ | 12,146 | (626,187 | ) | $ | (106,456,378 | ) | $ | (308,305 | ) | $ | (22,723,585 | ) | ||||||||||||||||||||||||||||||||||
| Cancellation of treasury stock | - | - | - | - | - | - | - | - | - | - | (626,187 | ) | - | 626,187 | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock issued for debt modification | - | - | - | - | - | - | 26,000 | 3 | - | - | 26,169,365 | - | - | - | - | 26,169,368 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued to settle accrued interest payable | - | - | - | - | - | - | - | - | 28,877,005 | 2,888 | 536,918 | - | - | - | - | 539,806 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (27,604 | ) | (27,604 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | - | - | (3,879,148 | ) | - | (3,879,148 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance - Sep 30, 2023 | 3,100,000 | $ | 310 | # | - | - | 3,220,000 | # | $ | 322 | 26,000 | # | $ | 3 | 376,328,885 | $ | 37,633 | $ | 110,699,858 | $ | 12,146 | - | $ | (110,335,526 | ) | $ | (335,909 | ) | $ | 78,837 | ||||||||||||||||||||||||||||||||||
| Balance Ending | 3,100,000 | $ | 310 | # | - | - | 3,220,000 | # | $ | 322 | 26,000 | # | $ | 3 | 376,328,885 | $ | 37,633 | $ | 110,699,858 | $ | 12,146 | - | $ | (110,335,526 | ) | $ | (335,909 | ) | $ | 78,837 | ||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Series D | Class A and Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Number | Number | Number | Number | Additional | Shares | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| of | Par | of | Par | of | Par | of | Par | of | Par | Paid in | to be | Treasury | Accumulated | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Value | 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 | ||||||||||||||||||||||||||||||||||||
| Beginning balance | 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 | - | - | - | - | - | - | - | - | - | - | 1,172,167 | - | - | - | - | 1,172,167 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of shares of Common Stock | - | - | - | - | - | - | - | - | (26,091,136 | ) | (2,609 | ) | 2,609 | - | (626,187 | ) | - | - | (626,187 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of shares of Common Stock | - | - | - | - | - | - | - | - | (26,091,136 | ) | (2,609 | ) | 2,609 | - | (626,187 | ) | - | - | (626,187 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (408,017 | ) | (408,017 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | - | - | (19,738,913 | ) | - | (19,738,913 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance - Sep 30, 2022 | 3,100,000 | $ | 310 | # | - | - | 3,220,000 | # | $ | 322 | - | # | $ | - | 262,832,833 | $ | 26,283 | $ | 81,913,495 | $ | 12,146 | (626,187 | ) | $ | (77,625,249 | ) | $ | (473,126 | ) | $ | 3,227,994 | |||||||||||||||||||||||||||||||||
| Ending balance | 3,100,000 | $ | 310 | # | - | - | 3,220,000 | # | $ | 322 | - | # | $ | - | 262,832,833 | $ | 26,283 | $ | 81,913,495 | $ | 12,146 | (626,187 | ) | $ | (77,625,249 | ) | $ | (473,126 | ) | $ | 3,227,994 | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS
Description of Operations
Sharing Services Global Corporation and subsidiaries (“Sharing Services” orServices,” “SHRG”) and its subsidiaries (collectively, the “Company”) aim to build shareholder value by developing or acquiringinvesting in innovative emerging businesses products and technologies in the direct selling industry and other industries that augment the Company’s productproducts and services portfolio, business competencies, and geographic reach.
The Company was incorporated in the State of Nevada in April 2015. The Company’s main business activities include:
Sale of Health and Wellness Products - The Company’s subsidiaries operating in theCompany markets its health and wellness products industry, which accounted for substantially all the Company’s consolidated net sales during the periods included in this Quarterly Report, market their products primarily through an independent sales force, using a direct selling business model under the proprietary brand “The Happy Co.” Currently, The Happy Co.TM markets and distributes its health and wellness products primarily in the United States Canada, the Republic of Korea,(the “U.S.”) and other countries in the Asia Pacific region.Canada.
Subscription-BasedSale of Member-Based Travel Services - Through its subsidiary, Hapi Travel Destinations, (“MyTravelVentures” or “MTV”), the Company deliversestablished a subscription-based travel services. MyTravelVentures’services business under the proprietary brand MyTravelVentures (“MTV”) in May 2022. MTV provides entrepreneurial opportunities to its subscribers by capitalizing on both the direct selling model and the retail travel business model. The MTV services are designed to offer the deepest discountsdiscount for travel relating to airfare, cruises, hotels, resorts, time shares and rental cars for destinations throughout the world for people of all ages, demographics, and economic backgrounds. MTV will also provide entrepreneurial opportunities to its subscribers by capitalizing on both the direct selling model and the retail travel business model.
Company-Owned and Franchised Cafes –In August 2021, Sharing Services hasand Hapi Café, Inc, a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, entered into a Master Franchise Agreement (“MFA”(the “MFA”) pursuant to acquirewhich Sharing Services acquired 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 DirectorUnder the terms of the Company. Under the MFA, Sharing Services, directly or through its subsidiaries, willhas the right to operate no less than five corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores. Each corporate-owned or franchised Hapi CaféTM store will allow customersstores, subject to the terms and Brand Partners seeking a healthier lifestyle access to: (a) functionalconditions contained in the MFA. In light of the challenges and healthy food and beverages, (b) a pleasant workspace with free Wi-Fi service, (c) physical fitness, nutrition management and personal workout print and video content, and (d)business opportunities presented by the Company’s proprietary travel services. In August 2022,COVID pandemic, the Company executed a non-binding letter of intent with American Wealth Mining Corporation (“AWM”, known previously as American Premium Water Corporation), ais refining its operating and related party, allowing AWMbusiness plan to be the exclusive franchisee ofopen up Hapi Café in Plano, Dallas and the State of New York.York City.
Targeted Ownership Interests – Directly or through its subsidiaries, the Company from time to time will invest in emerging businesses, using a combination of debt and equity financing, in efforts to leverage the Company’s resources and business competencies and to participate in the growth of these businesses’ growth.businesses. As part of the Company’s commitment to the success of these emerging businesses’ success,businesses, the Company, directly or through its subsidiaries, also offersplans to offer non-traditional inventory financing, equity or debt financing, order fulfillment and logistic, CRM “Back Office” solutions, and other success-critical services to these businesses.
NOTE 2- GOING CONCERN
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and settle its liabilities in the ordinary course of business for the foreseeable future. The Company has experienced a significant decline in consolidated sales and earnings during the most recent years. For the three months ended September 30, 2023, and 2022, net loss was approximately $1.5 million and $18.4 million, respectively. For the six months ended September 30, 2023, and 2022, net loss was approximately $3.9 million and $19.7 million. In addition, as of September 30, 2023, and March 31, 2023, accumulated deficit was approximately $110.4 million and $106.5 million, respectively.
Historically, the Company has funded its working capital needs primarily with capital transactions and with secured and unsecured debt, including the issuance of convertible notes and borrowings under short-term financing arrangements. The Company intends to continue to raise capital and use secured and unsecured debt, including the issuance of convertible notes and borrowings under short-term financing arrangements, from time to time in the future as needed to fund its working capital needs and strategic acquisitions.
| 9 |
During the past twelve months, the Company has initiated business initiatives intended to stabilize its sales levels, to drive long-term sales growth, and to create positive cash flows from operations, including by implementing stricter fiscal controls over operating costs and expenditures. The Company believes it will be able to fund its working capital needs for the next 12 months with: (a) secured and unsecured borrowings, including the issuance of convertible notes and borrowings under short-term financing arrangements, (b) capital transactions, and (c) cash from operations. However, there can be no assurance about the future success of the Company’s growth and cost control initiatives or about the Company’s ability to raise sufficient capital and to issue sufficient secured and unsecured debt, including the issuance of convertible notes and borrowings under short-term financing arrangements, in the future to fund its working capital needs.
These matters raise reasonable doubt as to the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 23 – 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 Annual Report on Form 10-K for the fiscal year ended March 31, 2022.2023. Unless so stated, the disclosures in the accompanying condensed consolidated financial statements do not repeal the disclosures in our consolidated financial statements for year ended March 31, 2022.2023.
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.
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:include, among others: the recoverability of notesaccounts and accountsnotes receivable, the valuation of inventory, the useful lives of fixed assets, the assessment of long-lived assets for impairment, the nature and timing of satisfaction of multiple performance obligations resulting from contracts with customers, the allocation of the transaction price to multiple performance obligations in a sales transaction, the measurement and recognition of right-of-use assets and related lease liabilities, the valuation of stock-basedshare-based compensation awards, the provision for income taxes, the measurement and recognition of uncertain tax positions, the valuation of long-term debt covenants, and the valuation of loss contingencies, if any. Actual results may differ from these estimates in amounts that may be material to our consolidated financial statements. We believe that the estimates and assumptions used in the preparation of our consolidated financial statements are reasonable.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents include recent customer remittances deposited with our merchant processors at the balance sheet date, which generally settle within 24 to 72 hours. As of December 31, 2022,September 30, 2023, and March 31, 2022,2023, cash and cash equivalents included cash held by our merchant processors of approximately $1.00.05 million and $3.30.5 million, respectively, including approximately $0.9 million and $3.0 million, respectively held by one merchant processor.respectively. In addition, as of December 31, 2022,September 30, 2023, and March 31, 2022,2023, cash and cash equivalents held in bank accounts in foreign countries in the ordinary course of business were approximately $1.40.4 million and $1.41.3 million, respectively. Amounts held by our merchant processor or held in bank accounts located in foreign countries are generally not insured by any federal agency.
Notes Receivable
On August 29, 2022, the Company and 1044Pro LLC (“1044”) entered in an agreement to modify the Revolving Promissory Note dated January 22, 2022. In accordance with the amendment, the Company agreed to lend $125,000 to 1044 for a 20% membership interest in 1044. The loan is secured by the assets of 1044 as well as by a personal guaranty executed by a member of 1044. At December 31, 2022, the amount due from 1044 is $230,355.
At December 31, 2022 and March 31, 2022, notes receivable were $926,205 and $601,520, before allowance for impairment losses of $709,320 and $601,520, respectively.
Investment in Marketable Securities
The Company has invested in a marketable security that can easily be bought, sold, or traded on public exchanges. The investment is carried at fair market. Unrealized gains and losses have been recorded in the Company’s consolidated statements of operations. At December 31, 2022, the investment was valued at approximately $4.3 million on the Company’s unaudited condensed consolidated balance sheet.
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. As of December 31, 2022,September 30, 2023, and March 31, 2022,2023, the allowance for obsolete inventory was $742,311881,868 and $108,055880,926, respectively, in connection with the health and wellness productsproduct that are eitheris damaged, expired or otherwise considered slowing movingin excess of forecasted outputs, based of historical or projectedon our current and anticipated sales levels. The Company reports its provisions for inventory losses in cost of goods sold in its condensed consolidated statements of operations.
| 10 |
Other Receivable and Loan Payable
In July 2023, the Company, through its out-sourced payroll services provider (“Paychex”), submitted a claim to the Internal Revenue Services (“IRS”) for the Employee Retention Tax Credit (“ERTC credit”) based on its payroll records and other pertinent information. Refunds will be distributed based on IRS processing times and the total ERTC credit will be approximately $1.88 million. Such the likelihood of receiving the ERTC credit is probable and the amount is estimable, the Company has recorded its ERTC credit in the Other Receivable.
Through the introduction of Paychex, the Company successfully applied for an ERTC loan (“bridge loan”) in August 2023. The bridge loan that was approved came to $1.2 million, and it was recoded as a Loan Payable. The loan is for a 12-month period and carries a 2% monthly interest rate. The loan proceeds must be used solely and exclusively for working capital and other business purposes and it had an origination fee of $24,000. The Company received net proceeds of approximately $1.18 million on September 9, 2023.
Other Assets
Other assets include a multi-user license and code of a back-office platform that was acquired for $1,000,000 in July 2022. This back-office platform is designed to facilitate the computation and processing of commission payments to distributors, and it requires customization in order for it to be operational. Costs associated with the customization and build out of the platform has been capitalized in accordance with ASC 350 - Capitalization on Internal-Use Software Costs.
NoteLoans 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”). At March 31, 2021, loan principal in the amount of $1.0 million was outstanding. The Company’s borrowings under the PPP Loan were eligible for loan forgiveness under the provisions of the CARES Act. In June 2021, the Company was formally notified by the lender that the Company’s obligations under the loan 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 $1.0 million in connection with such loan forgiveness.
On JuneSeptember 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 $5.7 million. The loan bears interest at the annual rate of 8%, matures on JuneSeptember 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 JuneSeptember 17, 2022. APB is a subsidiary of DSS, Inc.Inc, a major stockholder of the Company. Heng Fai Ambrose Chan, and Frank D. Heuszel, each a Director of APB,the Company, also serve on the Board of Directors of the Company.APB. Monthly payments of principal and interest in the amount of $43,897 have been made beginning July 1, 2022, and are payable on the same date of each month thereafter. The Company paid $307,279 in principal and interest related to the loan for the nine months ended December 31, 2022.
On August 11, 2022, the Company executed a revolving credit promissory note with APB (“the APB Revolving Note”) pursuant to which the Company has access to advances with a maximum principal balance not to exceed the principal sum of $10million. The APB Revolving Note included origination fees of $600,000. The Note is collateralized by the assets of the Company, and it bears interest at the annual rate of 8% and such interest shall be due and payable quarterly. Interest payments on the loan are due and payable on the last day of each consecutive third calendar month until the maturity date of August 12, 2024. On December 9, 2022, APB and the Company mutually agreed to limit and/or end any further commitment by APB to fund or to readvance under the terms of the APB Revolving Note. As of December 31, 2022,
Effective June 30, 2023, the Company, hadand Decentralized Sharing Systems, Inc. (“DSSI”), entered into an Assignment of Limited Liability Company Interests agreement pursuant to which: (a) DSSI assumed approximately $6.07.24 million outstandingin SHRG liabilities secured by certain Commercial Real Estate, (b) DSSI credited SHRG $239,790 towards accrued interest payable under the APB Revolving2022 Note (the “$27.0 million loan”), and no accrued interest as(c) DSSI acquired ownership of Linden Real Estate Holdings LLC, with its sole asset being a commercial lot and commercial building located in Lindon, Utah, subject to the assumed indebtedness.
On August 31, 2023, the Company and DSSI executed a debt exchange agreement whereby DSSI cancelled the $27 million loan and accepted shares of the date. Company’s Series D Preferred Stock, $ par value per share (“Preferred D Stock”) in exchange for the cancellation of the $27.0 million loan . Pursuant to the debt exchange agreement, the principal amount together with all unpaid interest, totaling $26,169,367.33 was deemed to be repaid. The holder of Preferred D Stock is entitled to receive dividends in cash valued at a rate of 25% per annum of the operating income of the Company. Any accrued and unpaid dividends shall be payable in cash commencing on August 31, 2024 and continuing each annual anniversary of such date on a perpetual basis.
Foreign Currency Translation
As part of our strategic growth plan initiatives, we have expanded our 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. Individual material transactions, if any, are translated using the actual rate of exchange on the transaction date. The resulting translation adjustments are reported in accumulated other comprehensive loss in our condensed consolidated balance sheets. In September 2021, the Company, through its wholly owned subsidiary, commenced operations in the Republic of Korea (South Korea).
SCHEDULE OF FOREIGN EXCHANGE CURRENCY TRANSLATION
| South Korean | ||||
| Won per USD | ||||
| Exchange rate as of | ||||
South Korean Won per USD | ||||||||
| Three Months Ended December 31, 2022 | Nine Months Ended December 31, 2022 | |||||||
| Average exchange rate as of December 31, 2022 | 1,359.18 | 1,320.11 | ||||||
| South Korean Won per USD | ||||||||
| Three Months ended | Six Months ended | |||||||
| September 30, 2023 | September 30, 2023 | |||||||
| Average exchange rate as of September 30, 2023 | 1,313.71 | 1,314.49 | ||||||
Comprehensive Loss
For the three and ninesix months ended December 31,September 30, 2023 and 2022, and 2021, the Company’s comprehensive loss was comprised of currency translation adjustments and net loss.
Revenue Recognition
As of December 31, 2022,September 30, 2023, and March 31, 2022,2023, deferred sales revenue associated with productproducts invoiced but not received by customers at the balance sheet date was $142,221158,463 and $344,071113,896, respectively. In addition, as of December 31, 2022September 30, 2023, and March 31, 2022,2023, deferred sales revenue associated with our unfulfilled performance obligations for services offered on a subscription basis was $89,67952,052 and $80,528, and $70,968; deferred sales revenue associated with our performance obligations for customers’ right of return was $63,38226,427 and $63,89026,894, and deferred salesrevenues associated with customer loyalty points was $106,38025,493 and $68,28725,493, respectively. Deferred sales arerevenue is expected to be recognized into income when the related performance obligations have been met.over one year.
During the three and ninesix months ended December 31,September 30, 2023 and 2022, no individual customer, or affiliated group of customers, represented 10% or more of the Company’ssubstantially all our consolidated net sales are from our health and approximately 64% of net sales for the three months ended December 31, 2022, were to customers (including 42% to recurring customers, refer internally as “SmartShip” sales, and approximately 22% to new customers) and approximately 36% of the Company’s net sales were to independent distributors.
During the nine months ended December 31, 2022, approximately 63% of the Company’s net sales were to customers (including 39% to recurring customers, refer herein as “SmartShip” sales, and approximately 24% to new customers) and approximately 37% of the Company’s net sales were to independent distributors.
During the nine months ended December 31, 2021, approximately 67% of the Company’s net sales were to customers (including 32% to recurring customers, refer herein as “SmartShip” sales, and approximately 35% to new customers) and approximately 33% of the Company’s net sales were to independent distributors.
During the nine months ended December 31, 2022, and December 31, 2021, approximately 93% and 86%, respectively, of the Company’s consolidated net sales were to customers and/or independent distributors located in the United States. No other country accounted for 10% or more of consolidated net sales.
wellness products. During the three months ended December 31,September 30, 2022, substantially all of the Company’sour consolidated net sales were from health and wellness products (including approximately 70% from the sale of coffee and other functional beverages, 20% from the sales of Nutraceutical products while the remaining sales of 10% were of weight management and other related products).
During the nine months ended December 31, 2022, substantially all of consolidated net sales were from health and wellness products (including approximately 70% from the sale of coffee and other functional beverages, 20% from the sale of Nutraceutical products and 10% from the sale of weight management products and all other health and wellness products). During the nine months ended December 31, 2021, substantially all net sales are from our health and wellness products (including approximately 39% from the sale of Nutraceutical products, 29% from the sale of coffee and other functional beverages, 12% from the sale of weight management products, and approximately 20% from the sale of all other health and wellness products).
During the nine months ended December 31, 2022, over 93% of the Company’s consolidated product purchases were from a third-party manufacturer based in the U.S. During the nine months ended December 31, 2021, approximately 58% of product purchases were from a third-party manufacturer based in the U.S., and approximately 41% of product purchases were from various suppliers located in Asia.products.
Sales Commissions
The Company recognizes sales commission expense,expenses, when incurred, in accordance with GAAP. During the three months ended December 31,September 30, 2023 and 2022, and 2021, sales commission expense, which is included in selling and marketing expenses in our condensed consolidated statements of operations and comprehensive loss, was approximately $1.20.7 million and $3.71.5 million, respectively; and duringrespectively. During the ninesix months ended December 31,September 30, 2023 and 2022, and 2021,sales commission expense was approximately $5.11.8 million and $13.63.9 million, respectively.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 that 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 that 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.
| 12 |
We calculate basic loss per share by dividing net loss availableattributable to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted lossearnings 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, if any, stock warrants and other commitments to issue common stock, except where the impact would be anti-dilutive.
SCHEDULE OF COMPUTATIONS OF BASIC AND DILUTED LOSS PER SHARE
| December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||||
| Net loss, as reported | $ | (11,024,951 | ) | $ | (6,940,162 | ) | (30,763,863 | ) | $ | (13,202,933 | ) | |||||
| After tax interest adjustment | - | - | - | |||||||||||||
| Net loss, if-converted basis | $ | (11,024,951 | ) | $ | (6,940,162 | ) | $ | (30,763,863 | ) | $ | (13,202,933 | ) | ||||
| Weighted average basic shares | 262,832,833 | 192,112,139 | 267,956,183 | 188,051,336 | ||||||||||||
| Dilutive securities and instruments: | ||||||||||||||||
| Convertible preferred stock | - | - | ||||||||||||||
| Convertible notes | - | - | ||||||||||||||
| Stock options and warrants | - | - | ||||||||||||||
| Weighted average diluted shares | 262,832,833 | 192,112,139 | 267,956,183 | 188,051,336 | ||||||||||||
| Loss per share: | ||||||||||||||||
| Basic and Diluted | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.12 | ) | $ | (0.07 | ) | ||||
| 2023 | 2022 | |||||||
| Three Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net loss | $ | (1,454,790 | ) | $ | (18,385,903 | ) | ||
| Weighted average basic shares | 376,328,885 | 262,832,833 | ||||||
| Weighted average diluted shares | 376,328,885 | 262,832,833 | ||||||
| Loss per share: | ||||||||
| Basic | $ | (0.004 | ) | $ | (0.07 | ) | ||
| Diluted | $ | (0.004 | ) | $ | (0.07 | ) | ||
| 2023 | 2022 | |||||||
| Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net loss | $ | (3,879,148 | ) | $ | (19,738,913 | ) | ||
| Weighted average basic shares | 373,961,126 | 270,531,857 | ||||||
| Weighted average diluted shares | 373,961,126 | 270,531,857 | ||||||
| Loss per share: | ||||||||
| Basic | $ | (0.01 | ) | $ | (0.07 | ) | ||
| Diluted | $ | (0.01 | ) | $ | (0.07 | ) | ||
SCHEDULE OF POTENTIALLY DILUTIVE INSTRUMENTS OUTSTANDING
| 2023 | 2022 | |||||||
| As of September 30, | ||||||||
| 2023 | 2022 | |||||||
| Convertible preferred stock | 6,320,000 | 6,320,000 | ||||||
| Convertible notes payable | - | 246,123,029 | ||||||
| Stock warrants | - | 23,246,817 | ||||||
| Total potential incremental shares | 6,320,000 | 275,689,846 | ||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Convertible preferred stock | 6,320,000 | 7,630,800 | ||||||
| Convertible notes payable | 163,612,120 | 157,756,728 | ||||||
| Stock warrants | - | 94,829,948 | ||||||
| Total potential incremental shares | 169,932,120 | 260,217,476 | ||||||
As of September 30, 2023, all employee warrants outstanding were fully vested.
The preceding table does not includeNOTE 5 – 3,750,000NOTES RECEIVABLE, NET for both stock warrants held by employees which are not vested (or exercisable) at December 31, 2022 and at December 31, 2021, respectively.
In January 2021, the Company, through a wholly owned subsidiary, and 1044Pro, LLC (“1044Pro”) entered into a Funding Agreement pursuant to which the Company agreed to provide 1044Pro loans under a $250,000 revolving credit line. In December 2021, the parties to the Funding Agreement entered into a modification to the Funding Agreement pursuant to which the parties agreed to increase the amount of the revolving credit line to $310,000. Borrowings under the credit line, as amended, are payable in monthly installments in amounts determined in relation to the amount of each cash advance. In connection with the Funding Agreement, the Company acquired a 10% equity interest in 1044Pro and a security interest in 1044Pro’s cash receipts and in substantially all 104Pro’s assets.
On January 26, 2022, the parties to the Funding Agreement discussed in the preceding paragraph entered into a new Loan Agreement (“Revolving Promissory Note”) pursuant to which the Company agreed to loan to 1044Pro up to an additional $250,000, of which $125,000 was funded immediately. Borrowings under the Revolving Credit Note bear interest at 10%, are payable in full on or before July 26, 2023, and are secured by a security interest in substantially all 1044Pro’s assets and a security interest in 50% of 1044Pro’s members’ interest. Borrowings under the Loan Agreement are further secured by a personal guaranty executed by a member of 1044Pro.
On August 29, 2022, the Company and 1044Pro entered into an agreement to modify the Revolving Promissory Note dated January 26, 2022. In accordance with the amendment, the Company agreed to lend $125,000 to 1044 for a 20% membership interest in 1044Pro. The loan is secured by the assets of 1044Pro as well as by a personal guaranty executed by a member of 1044Pro.
| 13 |
Effective June 30, 2023, the Company and DSSI, entered into a Loan Purchase Contract, Assignment of Note and liens and Other Loan Documents, pursuant to which DSSI purchased from SHRG promissory notes in the amount of $666,875 and related equity interests of 1044Pro LLC, for a purchase price of $400,000, with the financial terms generally summarized as follows: (a) DSSI pays the purchases price by crediting $400,000 to the outstanding principal and interest owing under the terms of the $27.0 million loan, and (b) DSSI acquired ownership of the $666,875 promissory note payable by 1044Pro, free and clear of any liens, and any equity interest in 1044Pro LLC that SHRG held.
NOTE 46 – INVENTORY, NET
Inventory consists primarily of finished goods. The Company provides an allowance for any slow-moving damaged, expired or expiringobsolete inventory. As of December 31, 2022,September 30, 2023, and March 31, 2022,2023, inventory consists of the following:
SCHEDULE OF INVENTORY
| September 30, 2023 | March 31, 2023 | |||||||||||||||
December 31, 2022 | March 31, 2022 | |||||||||||||||
| Finished Goods | $ | 3,470,442 | $ | 4,482,291 | $ | 3,082,878 | $ | 2,517,046 | ||||||||
| Allowance for inventory obsolescence | (742,311 | ) | (108,055 | ) | (881,868 | ) | (880,926 | ) | ||||||||
| Inventory, net | $ | 2,728,131 | $ | 4,374,236 | $ | 2,201,010 | $ | 1,636,120 | ||||||||
The Companyfollowing table reflects the activity in the allowance for inventory obsolescence for the nine months ended December 31, 2022, and December 31, 2021, was $742,311 and $388,431, respectively. The increase in the allowance was primarily driven by expired/expiring products.periods presented:
On July 5, 2022, the Company entered into an asset purchase agreement with Hulsa LLC. The Company purchased assets, inclusive of inventory and intangible assets. The Company paid $400,000 in exchange for the assets and received approximately $177,000 of inventory related to the purchase. The inventory is included within the Inventory, net, line on the condensed consolidated balance sheet.
NOTE 57 – OTHER CURRENT ASSETS, NET
Other current assets consist of the following:
SCHEDULE OF OTHER CURRENT ASSETS
| December 31, 2022 | March 31, 2022 | September 30, 2023 | March 31, 2023 | |||||||||||||
| Prepaid consulting fees, related party | $ | 230,136 | $ | 2,867,123 | ||||||||||||
| Inventory-related deposits | 222,982 | 384,477 | $ | 324,781 | $ | 288,649 | ||||||||||
| Accounts receivable, related parties | 250 | 167,578 | ||||||||||||||
| Prepaid insurance and other operational expenses | 258,257 | 201,275 | 52,686 | 105,652 | ||||||||||||
| Deposits for sales events | - | 222,540 | - | 120,614 | ||||||||||||
| Prepaid interest, related party | - | - | ||||||||||||||
| Right to recover asset | 16,094 | 15,632 | 20,331 | 20,975 | ||||||||||||
| Subtotal | 727,469 | 3,691,047 | 398,048 | 703,468 | ||||||||||||
| Less: allowance for losses | (175,641 | ) | (179,765 | ) | (175,641 | ) | (175,641 | ) | ||||||||
| Other current assets | $ | 551,828 | $ | 3,511,282 | $ | 222,407 | $ | 527,827 | ||||||||
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). 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. Prepaid interest represents interest on the 2022 Note due to DSSI (see NOTE 14 below) for the period from July 1, 2023 inclusive to September 30, 2023. Right to recover assetassets is associated with our customers’ right of return and is expected to be realized in one year or less. As of both December 31, 2022,September 30, 2023, and March 31, 2022,2023, the provision for losses in connection with certain inventory-related deposits for which recoverability is less than certain was approximately $175,641176,000 and $179,765.
| 14 |
NOTE 68 – 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 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 and nine months ended December 31,September 30, 2022, the Company recognized losses,unrealized gains, before income tax, of $1.24,865,354 million and $4.9 million in connection with its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock.
Effective June 30, 2023, subject to the terms of a certain Loan Purchase Contract, Assignment of Note and Liens and Other Loan Documents, and Note Allonge document, DSSI purchased from SHRG the Stemtech promissory note in the amount of $1.4 million, along with all SHRG’s rights in any Stemtech warrants, for a purchase price of $1.1 million, with the financial terms generally summarized as follows: (a) DSSI paid the $1.1 million purchase price by crediting the $27.0 million loan, first to interest and then to principal, and (b) DSSI acquired ownership of the $1.4 million promissory note payable by Stemtech, free and clear of any liens, and any equity or warrant interest in the Stemtech that SHRG may have held. As of September 30, 2023, as a result of the transaction, the Company no longer has an investment in Stemtech.
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. In March of 2022, the company impaired the MojiLife investment as the evaluation at such time determined the investment was not fully recoverable.
Investment in unconsolidated entities and securities consists of the following:
SUMMARY OF INVESTMENT IN UNCONSOLIDATED ENTITIES
December 31, 2022 | March 31, 2022 | September 30, 2023 | March 31, 2023 | |||||||||||||
| Investment in detachable GNTW stock warrant | $ | 126,000 | $ | 3,570,000 | $ | - | $ | 143,641 | ||||||||
| Investment in GNTW common stock | 13,876 | 393,141 | - | 18,300 | ||||||||||||
| Investment in Stemtech convertible note | 38,851 | 1,100,799 | - | 44,290 | ||||||||||||
| Investment in MojiLife, LLC | 1,537,000 | 1,537,000 | 1,537,000 | 1,537,000 | ||||||||||||
| Subtotal | 1,715,727 | 6,600,940 | 1,537,000 | 1,743,231 | ||||||||||||
| Less, allowance for impairment losses | (1,537,000 | ) | (1,537,000 | ) | (1,537,000 | ) | (1,537,000 | ) | ||||||||
| Investments | $ | 178,727 | $ | 5,063,940 | $ | - | $ | 206,231 | ||||||||
The following table reflects the activity in the allowance for impairment losses for the periods presented:
SCHEDULE OF ALLOWANCE FOR IMPAIRMENT LOSSES
| December 31, 2022 | March 31, 2022 | |||||||
| Balance at beginning of period | $ | 1,537,000 | $ | - | ||||
| Provision for estimated impairment losses | - | 1,537,000 | ||||||
| Balance at end of period | $ | 1,537,000 | $ | 1,537,000 | ||||
| 15 |
NOTE 79 – PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
SUMMARY OF PROPERTY AND EQUIPMENT
| December 31, 2022 | March 31, 2022 | September 30, 2023 | March 31, 2023 | |||||||||||||
| Building and building improvements | $ | 8,975,813 | $ | 8,976,878 | $ | - | $ | 8,952,555 | ||||||||
| Computer software | 1,025,586 | 875,925 | 1,024,274 | 1,024,274 | ||||||||||||
| Furniture and fixtures | 237,045 | 237,045 | 237,042 | 237,042 | ||||||||||||
| Computer equipment | 223,424 | 223,424 | 220,264 | 220,264 | ||||||||||||
| Vehicles | 27,851 | - | ||||||||||||||
| Leasehold improvements and other | 371,124 | 263,208 | 394,306 | 394,306 | ||||||||||||
| Total property and equipment | 10,860,843 | 10,576,480 | 1,875,886 | 10,828,441 | ||||||||||||
| Impairment of property and equipment | - | (100,165 | ) | |||||||||||||
| Accumulated depreciation and amortization | (1,423,299 | ) | (891,174 | ) | (1,498,234 | ) | (1,558,248 | ) | ||||||||
| Property and equipment, net | $ | 9,437,544 | $ | 9,585,141 | $ | 377,652 | $ | 9,270,193 | ||||||||
NOTE 8 - OTHER ASSETS
In July 2022,Effective June 30, 2023, the Company and DSSI entered into an Assignment of Limited Liability Company Interests agreement pursuant to which: (a) DSSI assumed approximately $7.24 million in SHRG liabilities secured by certain Commercial Real Estate, (b) DSSI credited SHRG $239,790 towards accrued interest payable under the 2022 Note (the “$27.0 million loan”), and (c) DSSI acquired ownership of Linden Real Estate Holdings LLC, with its sole asset being a multi-user license of a back-office platform for $1,000,000. This back-end platform is designedcommercial lot and commercial building located in Lindon, Utah, subject to facilitate the computation and processing of commission payments to distributors, and it requires customization in order for it to be operational. The license has no resell rights and the Company has the option to buy the full license within six months of the launch of the platform. At of the date of this report, this platform is in development for inclusion of relevant user requirements.assumed indebtedness.
NOTE 910 – ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consist of the following:
SUMMARY OF ACCRUED AND OTHER CURRENT LIABILITIES
| December 31, 2022 | March 31, 2022 | September 30, 2023 | March 31, 2023 | |||||||||||||
| Deferred sales | $ | 401,663 | $ | 547,217 | ||||||||||||
| Deferred sales revenues | $ | 262,434 | $ | 246,811 | ||||||||||||
| Liability associated with uncertain tax positions | 925,795 | 921,987 | 925,795 | 925,795 | ||||||||||||
| Accrued interest payable | - | 536,123 | ||||||||||||||
| Payroll and employee benefits | 388,193 | 478,360 | 207,565 | 329,762 | ||||||||||||
| Settlement liability, current portion | 224,000 | 341,919 | ||||||||||||||
| Lease liability, current portion | 78,266 | 134,578 | 44,650 | 41,385 | ||||||||||||
| Due to related parties | 53,797 | 125,532 | ||||||||||||||
| Other operational accruals | 1,368,114 | 530,189 | ||||||||||||||
| Other accruals | 947,728 | 701,161 | ||||||||||||||
| Accrued and other current liabilities | $ | 3,439,828 | $ | 3,079,782 | $ | 2,388,171 | $ | 2,781,037 | ||||||||
Lease liability, current portion, representrepresents obligations due within one year under operating leases for office space, automobiles, and office equipment. See Note14 - LEASES below for more information. OtherAs of September 30, 2023, and March 31, 2023, other accruals include amounts due to related parties of $0 and $167,578, respectively, and several operational accruals of $947,728 and $533,583, respectively.
Included in other accurals are amount due to DSS/DSSI for $603,876as of December 31, 2022, include accrued expense of $816,115 and accrued interest of $552,000 on the related party convertible notes and notes payable included in the condensed consolidated balance sheet.September 30, 2023
NOTE 1011 - CONVERTIBLE NOTESNOTE PAYABLE, RELATED PARTIESPARTY
Convertible notesNote payable, related party, consists of the following:
SCHEDULE OF CONVERTIBLE NOTES PAYABLE
| Issuance Date | Maturity Date | Interest Rate | Conversion Price (per share) | December 31, 2022 | March 31, 2022 | |||||||||||||
| April 2021 | April 2024 | 8 | % | $ | 0.20 | $ | - | $ | 30,000,000 | |||||||||
| October 2017 | October 2022 | 12 | % | $ | 0.15 | - | 50,000 | |||||||||||
| June 2022 | June 2024 | 8 | % | $ | 0.03 | 27,000,000 | - | |||||||||||
| Total convertible notes payable | 27,000,000 | 30,050,000 | ||||||||||||||||
| Less: unamortized debt discount and deferred financing costs | 14,866,710 | 20,151,230 | ||||||||||||||||
| 12,133,290 | 9,898,770 | |||||||||||||||||
| Less: current portion of convertible notes payable | 12,133,290 | 9,898,770 | ||||||||||||||||
| Long-term convertible notes payable | $ | - | $ | - | ||||||||||||||
| Issuance Date | Maturity Date | Interest Rate | Conversion Price (per share) | September 30, 2023 | March 31, 2023 | |||||||||||||
| September 2022 | September 2024 | 8 | % | $ | N/A | $ | - | $ | 27,000,000 | |||||||||
| Unamortized debt discount and deferred financing costs | - | (2,172,914 | ) | |||||||||||||||
| - | 24,827,086 | |||||||||||||||||
| Less: current portion of note payable | - | 24,827,086 | ||||||||||||||||
| Long-term note payable | $ | - | $ | - | ||||||||||||||
| 16 |
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, 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 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. On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $78,636, which amount represents the principal plus accrued interest. The Company made the payment to 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 $ per share, and DSSI loaned to the Company $30.0 million. DSSI, is a subsidiary of DSS, Inc. (formerly Document Security Systems, Inc., “DSS”), and, together with DSS, is a major shareholder of the Company. Under the terms of the loan, the Company agreed to pay to DSSI a loan Origination Fee of $3.0 million, payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. The Note bore interest at the annual rate of 88%%, with a maturity date of April 5, 2024, subject to certain accelerated 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 could 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 was pre-payable annually in cash or in shares of the Company’s Class A Common Stock, at the option of the Company, except that interest for the first year was pre-payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. As further discussed below, the Note and the detachable Warrant were redeemed in JuneSeptember 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 were being amortized into interest expense over the term of the note (three years). During the nine months ended December 31, 2021, the Company issued to DSSI shares of its Class A Common Stock, including shares in payment of the loan Origination Fee and shares in prepayment of interest for the first year and recognized a deemed dividend of $1,080,000 for the excess of the fair value of the shares issued over the amounts settled.
On JuneSeptember 15, 2022, the Company and DSSI which, together with DSS, is a majoritymajor 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 88%% 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 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.
DuringIn March 2023, the three months ended December 31,Company and DSSI entered into a Securities Exchange and Amendment Agreement pursuant to which the parties agreed to amend the 2022 Note by removing the conversion rights granted by the 2022 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 December 31, 2021,the carrying value of the retired equity instruments was recognized as a deemed dividend of approximately $10.7 million on the Company’s consolidated financial statements.
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As more fully discussed in Notes 5 and 8, effective June 30, 2023, the Company and DSSI entered into two transactions, involving the sale of certain assets to DSSI, pursuant to which DSSI credited, in the aggregate, $641,790 to principal outstanding on the 2022 Note. In addition, as more fully discussed in Notes 8 and 9, effective June 30, 2023, DSSI also credited, in the aggregate, $546,000 in accrued interest expensedue on the 2022 Note in connection with transactions involving the sale of certain assets to DSSI.
On August 31, 2023, the Company and DSSI executed a debt exchange agreement whereby DSSI cancelled the $27 million loan and accepted shares of the Company’s convertible notes wasSeries D Preferred Stock, $ andpar value per share (“Preferred D Stock”) in exchange for the cancellation of the $605,934, respectively, excluding amortization of debt discount and deferred financing costs of $2.527.0 million loan. Pursuant to the debt exchange agreement, the principal amount together with all unpaid interest, totaling $26,169,367.33 was deemed to be repaid. The holder of Preferred D Stock is entitled to receive dividends in cash valued at a rate of 25% per annum of the operating income of the Company. Any accrued and $2.3 million, respectively. During the nine months ended Decemberunpaid dividends shall be payable in cash commencing on August 31, 2022,2024 and December 31, 2021, interest expense in connection with the convertible notes were $1.2 million and $1.8 million, respectively, excluding amortizationcontinuing each annual anniversary of debt discount and deferred financing cost of $5.6 million and $6.7 million respectively. These amounts are included in interest expense in our consolidated statements of operations.such date on a perpetual basis.
NOTE 1112 – 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 | 2022 | 2021 | ||||||
| United States | 21 | % | 21 | % | ||||
| Republic of Korea | 21 | % | 22 | % | ||||
| Effective Income Tax Rate | 21 | % | 22 | % | ||||
| Country | 2023 | 2022 | ||||||
| United States | 21 | % | 21 | % | ||||
| Republic of Korea | 21 | % | 21 | % | ||||
| Effective Income Tax Rate | 21 | % | 21 | % | ||||
Our consolidated effective income tax rate reconciliation is as follows:
SCHEDULE OF INCOME TAX RATE RECONCILIATION RATE
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Nine Months Ended December 31, | Six Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||
| State and local income taxes | (0.0 | ) | (0.7 | ) | (0.2 | ) | (0.2 | ) | ||||||||
| Valuation allowance for NOL carry-forwards | (21.0 | ) | (51.1 | ) | ||||||||||||
| Permanent differences | 0.8 | - | ||||||||||||||
| Change in valuation allowance for NOL carry-forwards | (21.0 | ) | (15.6 | ) | ||||||||||||
| Stock warrant transactions and other items | (2.5 | ) | 4.1 | - | (0.2 | ) | ||||||||||
| Effective income tax rate | (2.5 | )% | (26.7 | )% | 0.6 | % | 5.2. | % | ||||||||
Income taxes applicable to our foreign operations are not material in the periods presented.
NOTE 1213 - STOCKHOLDERS’ EQUITY
Common Stock
DuringOn September 15, 2022, the nine months ended December 31, 2022,Company and DSSI which, together with DSS, is a major 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 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 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 discussed more fullya related party, the difference between the fair value of the new equity instruments and the carrying value of the retired equity instruments was recognized as a capital contribution of $2.0 million in additional paid in capital on the Company’s consolidated balance sheet.
On February 3, 2023, the Company mutually agreed with DSS to enter into a Letter Agreement (the “DSS Letter Agreement”), pursuant to which the Company and DSS have agreed to terminate and release all obligations of the Consulting Agreement effective as of December 31, 2022. In accordance with the DSS Letter Agreement, the Company also agreed to issue shares of the Company’s Common Stock in lieu of cash payment to satisfy the accrued and unpaid service fees equal to $700,000 owed to DSS under the Consulting Agreement.
On February 28, 2023, the Company and DSSI mutually agreed in a Letter Agreement (the “First DSSI Letter Agreement”) to a mutual settlement of the interest accrued on the 2022 Note 9 – Convertible Notes Payable, Related Parties.issued by the Company to DSSI. In accordance with the DSSI Letter Agreement, the Company agreed to issue shares of the Company’s Common Stock, at a price per share of $ in lieu of cash payment to satisfy the accrued and unpaid interest through and including December 31, 2022, in the amount of $552,000 owed to DSSI.
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In March 24, 2023, the Company, DSS and DSSI, entered into a Securities Exchange and Amendment Agreement (the “Agreement”). Pursuant to the Agreement, the parties decided to: 1) exchange and surrender the Assigned Warrants, 2) exchange and surrender the Service Warrants, 3) exchange and surrender the DSSI Warrants, and 4) amend the 2022 Note by removing all conversion rights granted by the 2022 Note. Under the terms of the Agreement, the Company issued shares of its Class A Common Stock in connection with the exchange and surrender of the Assigned Warrants and the Service Warrants. In accordance with GAAP, the Company recognized a deemed dividend of $213,062 on the Company’s consolidated financial statements. In addition, the Company issued shares of its Class A Common Stock in connection with removal of all conversion rights granted by the 2022 Note. The Company recognized the debt modification transaction as a debt extinguishment in accordance with GAAP. Since DSSI is a related party, the difference between the fair value of the new debt instrument and the carrying value of the retired debt instrument was recognized as a deemed dividend of $10.7 million on the Company’s consolidated financial statements.
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 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 $ per share. In the nine months ended December 31,fiscal quarter ending September 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 Company reported 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 () shares, $ par value per share, of which: (a) Two Billion () Shares of Common Stock having a par value of $ per share (“Common Stock”) and (b) Two Hundred Million () Shares of Preferred Stock comprised of Series A and Series C having a par value of $ per share or as authorized (“Preferred Stock”).
The Company’s Board of Directors has designated shares of Class B Common Stock, par value per share. As of December 31, 2022, and March 31, 2022, there were and shares of the Company’s common stock in Treasury Stock until the interim period ended September 30, 2023, when it cancelled the stock certificate.
On April 17, 2023, the Company and DSSI, mutually agreed in a subsequent Letter Agreement (the “Second DSSI Letter Agreement”) to a mutual settlement of the interest accrued on the 2022 Note between January 1, 2023, through and including March 31, 2023. In accordance with the Second DSSI Letter Agreement, the Company agreed to issue shares of the Company’s Common Stock, at a price per share of $ in lieu of cash payment to satisfy the accrued and unpaid interest between January 1, 2023, through and including March 31, 2023, equal to $539,806 owed to DSSI under the Second DSSI Letter Agreement. The Company’s shares were trading at $0.0180 on April 17, 2023.
As of September 30, 2023, and March 31, 2023, 376,328,885 shares and shares of our Class A Common Stock issued. Asremained issued and outstanding, respectively. As of December 31, 2022,September 30, 2023, and March 31, 2022, there were shares and shares, respectively, net of shares held in Treasury Stock at December 31, 2022, of the Company’s Class A Common Stock outstanding. As of December 31, 2022, and March 31, 2022,2023, there were shares of the Company’s Class B Common Stock issuedoutstanding.
On August 31, 2023, the Company and outstanding.DSSI executed a debt exchange agreement whereby DSSI cancelled the $27 million loan and accepted shares of the Company’s Series D Preferred Stock, $ par value per share (“Preferred D Stock”) in exchange for the cancellation of the $27.0 million loan. Pursuant to the debt exchange agreement, the principal amount together with all unpaid interest, totaling $26,169,367.33 was deemed to be repaid. The holder of Preferred D Stock is entitled to receive dividends in cash valued at a rate of 25% per annum of the operating income of the Company. Any accrued and unpaid dividends shall be payable in cash commencing on August 31, 2024 and continuing each annual anniversary of such date on a perpetual basis.
NOTE 1314 - 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 $ million in the Company and the Company agreed to issue million shares of the Company’s Class A Common Stock and a fully vested Stock Warrant to purchase up to million shares of the Company’s Class A Common Stock at an exercise price of $ per share. Concurrently with the SPA Agreement, Mr. Chan and DSS, then a major shareholder of the Company, entered into an Assignment and Assumption Agreement pursuant to which Mr. Chan assigned to DSS all interests in the SPA Agreement. In July 2020, the Company issued million of its Class A Common Stock pursuant to the SPA Agreement. The Stock Warrant issued pursuant to the SPA Agreement expires on the third anniversary from the issuance date, unless exercised earlier.
In April 2021, the Company and DSSI entered into a Securities Purchase Agreement, pursuant to which DSSI granted a $30.0 million loan to the Company in exchange for: (a) a Convertible Promissory Note in the principal amount of $30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Stock Warrant to purchase up to 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 million shares of its Class A Common Stock to DSSI, including 15.0 million shares in payment of the loan origination fee and million shares in prepayment of interest on a loan for the first year.
| 19 |
In December 2021, the Company and DSSI entered into a Stock Purchase and Share Subscription Agreement pursuant to which DSSI invested $ in the Company in exchange for million shares of Class A Common Stock (the “Shares”) and stock warrants (the “Stock Warrants”) to purchase up to million shares of the Company’s Class A Common Stock. The Stock Warrants are fully vested, have a term of five () years and are exercisable at any time prior to expiration, at the option of DSSI, at a per share price equal to $. On the effective date of the Stock Purchase and Share Subscription Agreement, the closing price for the Company’s common stock was $ per share and the Company recognized a deemed dividend of $ million in connection with the transaction.
In January 2022, the Company and DSS who, together with its subsidiaries, is currently a majoritymajor 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 $ per share and the fair value of the Stock Warrant was $3.5 million. The fair value of the Stock Warrant is being recognized aswas amortized into consulting expense over the term of one year. As of December 31, 2022, the Company had accrued approximately $700,000, related to the Consulting Agreement, within the condensed consolidated financial statements. During the three and nine months ended December 31,September 30, 2022, the Company recognized consulting expense of $1.0872,603 million and $3.1 million,, in connection with the Consulting Agreement. In February 2022, the Company issued million shares of its Common Stock Class A to DSS in connection with exercise of the Stock Warrant.
On JuneSeptember 15, 2022, the Company and Decentralized Sharing Systems, Inc. (“DSSI”)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 88%% 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 shares of the Company’s Class A Common Stock, at the option of the holder.
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 shares of the Company’s Class A Common Stock, at $0.22 per share, issued concurrently with such $30.0 million note.
AsOn February 3, 2023, the Company mutually agreed with DSS to enter into a Letter Agreement (the “DSS Letter Agreement”), pursuant to which the Company and DSS have agreed to terminate and release all obligations of the Consulting Agreement effective as of December 31, 2022. In accordance with the DSS Letter Agreement, the Company also agreed to issue shares of the Company’s Common Stock in lieu of cash payment to satisfy the accrued and unpaid service fees equal to $700,000 owed to DSS under the Consulting Agreement.
On February 28, 2023, the Company and DSSI mutually agreed in a Letter Agreement (the “First DSSI Letter Agreement”) to a mutual settlement of the interest accrued on the 2022 Note issued by the Company to DSSI. In accordance with the DSSI Letter Agreement, the Company agreed to issue shares of the Company’s Common Stock, at a price per share of $ in lieu of cash payment to satisfy the accrued and unpaid interest through and including December 31, 2022, in the amount of $552,000 owed to DSSI.
On March 24, 2023, the Company, DSS and DSSI, entered into a Securities Exchange and Amendment Agreement (the “Agreement”) pursuant to which the parties agreed to: (1) exchange and surrender of the Assigned 60 million Warrants in exchange for shares of the Company’s Class A common stock; (2) exchange and surrender the Service Warrants of warrants for shares of the Company’s Class A common stock; (3) exchange and surrender the DSSI Warrants; and (4) amend the 2022 Note by removing all conversion rights granted by the 2022 Note in exchange for shares of the Company’s Class A common stock. The Company issued shares of the Company’s Class A Common Stock in full satisfaction, exchange and payment for the exchanges and amendments set forth in the Agreement. 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 as a deemed dividend on the Company’s consolidated financial statements.
| 20 |
On April 17, 2023, the Company and DSSI mutually agreed in a subsequent Letter Agreement (the “Second DSSI Letter Agreement”) to a mutual settlement of the interest accrued on the 2022 Note between January 1, 2023, through and including March 31, 2023. In accordance with the Second DSSI Letter Agreement, the Company agreed to issue shares of the Company’s Common Stock, at a price per share of $ in lieu of cash payment to satisfy the accrued and unpaid interest between January 1, 2023, through and including March 31, 2023, in the amount of $539,806 owed to DSSI.
On May 4, 2023, DSS and DSSI distributed, in the aggregate, shares of SHRG they then held to DSS, Inc. shareholders in connection with the Form S-1 (file no. 333-271184) initially filed with the Securities and Exchange Commission on April 7, 2023, and declared effective on April 25, 2023. Accordingly, after the distribution, DSS ceased to be a majority shareholder of the Company.
Effective June 30, 2023, subject to the terms of a certain Loan Purchase Contract, Assignment of Note and Liens and Other Loan Documents, and Note Allonge document, DSSI purchased from SHRG a Stemtech promissory note in the amount of $1.4 million, along with all SHRG’s rights in any Stemtech warrants, for a purchase price of $1.1 million, with the financial terms generally summarized as follows: (a) DSSI pays the $1.1 million purchase price by crediting the $27.0 million loan, first to interest and then to principal, and (b) DSSI acquired ownership of certain $1.4 million promissory note payable by Stemtech, free and clear of any liens, and any equity or warrant interest in the Stemtech that SHRG may have held. As of June 30, 2023, as a result of the transaction, the Company no longer has an investment in Stemtech.
On July 1, 2023, the Company and DSSI, entered into a Securities Purchase Agreement, pursuant to which the Company purchased shares of common stock, par value $ per share, (the “Shares”) representing all of the issued and outstanding shares of common stock of HWH World, Inc., a Texas corporation (“HWHW”). The Company purchased the Shares for a consideration of (i) $10 paid immediately in cash, and (ii) up to $711,300 payable from the gross proceeds generated from the sale of HWHW’s inventory, payable quarterly, and as described in detail in the Securities Purchase Agreement.
Effective July 1, 2023, the Company and DSSI cancelled the previously executed Securities Purchase Agreement related to HWHW and replaced it with an Asset Purchase Agreement whereby the Company agreed to purchase the inventory of HWHW as of June 30, 2023 and assumed certain account payable of HWHW as of June 30, 2023. Pursuant to the Asset Purchase Agreement, the Company agreed to pay DSSI a maximum of $757,641.98 from gross proceeds generated from the sale of HWHW inventory.
On July 1, 2023, the Company and DSSI, entered into a Securities Purchase Agreement, pursuant to which the Company purchased shares of common stock, par value $ per share, (the “HWHH Shares”) representing all of the issued and outstanding shares of common stock of HWHH Holdings, Inc., a Texas corporation (“HWHH”). The Company purchased the HWHH Shares for a consideration of (i) $10.00 paid immediately in cash, and (ii) up to $1,210,224 payable from the gross proceeds generated from the sale of HWHH’s inventory, payable quarterly, and as described in detail in the Securities Purchase Agreement.
Effective July 1, 2023, the Company, DSSI and Ascend Management Pte, a Singaporean private limited company (“Ascend Management”) executed an Assignment and Assumption Agreement whereby Ascend Management purchased shares of common stock, par value $ per share, of HWHH, representing all of the issued and outstanding shares of capital stock of HWHH, pursuant to that certain Securities Purchase Agreement made as of July 1, 2023 by and between DSSI and the Company. In connection with the Assignment and Assumption Agreement, the Company and HWHH entered into a business consulting agreement to assist in the management of the business of HWHH.
On August 31, 2023, the Company and DSSI executed a debt exchange agreement whereby DSSI cancelled the $27 million loan and accepted shares of the Company’s Series D Preferred Stock, $ par value per share (“Preferred D Stock”) in exchange for the cancellation of the $27.0 million loan. Pursuant to the debt exchange agreement, the principal amount together with all unpaid interest, totaling $26,169,367.33 was deemed to be repaid. The holder of Preferred D Stock is entitled to receive dividends in cash valued at a rate of 25% per annum of the operating income of the Company. Any accrued and unpaid dividends shall be payable in cash commencing on August 31, 2024 and continuing each annual anniversary of such date on a perpetual basis.
As of September 30, 2023, DSS and its affiliatessubsidiaries owned, in the aggregate, million shares of the Company’s Class A Common Stock, excluding million shares issuable upon the exercise of warrants held by DSS and million shares issuable upon conversion of the Note discussed in the third preceding paragraph.Stock. Heng Fai Ambrose Chan, Frank D. Heuszel, and John (“JT”) Thatch, each a Director of the Company, also serve on the Board of Directors of DSS. Mr. Chan serves as Chairman of the Board of Directors of the Company. Mr. Thatch also serves as President, CEO and Vice Chairman of the Board of Directors of the Company.
Alset Title Company, Inc.
In December 2021, Sharing Services, through one of its subsidiaries, purchased an office building in Lindon, Utah for $8,942,640. In connection therewith, Alset Title Company, Inc. (“Alset Title”), a subsidiary of DSS, acted as escrow and closing agent for the transaction, at no cost. DSS, together with its subsidiaries, is a major 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 September 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 September 1, 2024, is payable in equal monthly instalments of $43,897 commencing on July 1, 2022 (with the remainder due on September 1, 2024). The loan 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 September 17, 2022. APB is a subsidiary of DSS. 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, and Messrs. Chan and Heuszel also serve on the Board of Directors of APB.
On August 11, 2022, the Company executed a revolving credit promissory note with APB pursuant to which the Company has access to advances with a maximum principal balance not to exceed the principal sum of $10.0 million. The APB Revolving Note is collateralized by the assets of the Company, and it bears interest at the annual rate of 8% and such interest shall be due and payable quarterly as it accrues on the outstanding balance. On December 9, 2022, APB and the Company mutually agreed to limit and/or end any further commitment by APB to fund or to readvance under the terms of the APB Revolving Note to $6.0 million.
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As discussed above, effective June 30, 2023 subject to the terms of an Assignment of Limited Liability Company Interests agreement, DSSI purchased the SHRG subsidiary, Linden Real Estate Holdings LLC, with the financial terms generally summarized as follows: (a) DSSI assumed approximately $7.24 million in SHRG liabilities (namely, all amounts due under the APB Loan and the APB Revolving Note), (b) DSSI credited SHRG $239,790 towards accrued interest payable under the 2022 Note (the “$27.0 million loan”), and (c) DSSI acquired ownership of Linden Real Estate Holdings LLC, with its sole asset being a commercial lot and commercial building located in Lindon, Utah, subject to the assumed indebtedness.
HWH International, Inc.
In October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $50,000 (the “Note”) to HWH International, Inc. (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who became a Director of the Company in April 2020. The Note is convertible into 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. On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $78,63678,635, which amount represents the principal plus accrued interest. The detachable stock warrant to purchase the additional shares of the Company’s Common Stock was forfeited by the Holder upon payment. The Company made the payment to HWH on August 9, 2022.
HWH World, Inc.
A subsidiary of the Company operating in the Republic of Korea subleases office space, on a month-to-month basis, from HWH World, Inc. (“HWH World”), until September 30, 2023, a subsidiary of DSS and a company affiliated with Heng Fai Ambrose Chan, a Director of the Company. Pursuant to the terms of the sublease agreement, the Company recognized a right-of-use asset and an operating lease liability of $261,835 in connection therewith. In fiscal year ended March 31, 2022, the Company recognized expense of $222,092 in connection this lease. As of March 31, 2022, accounts payable 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 subleased by the Company and the related rent obligation. On JuneSeptember 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 $2,808936 in rent expense for the nine months ended December 31, 2022, 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 nine months ended December 31, 2022. No consulting income has been recognized for the three and nine months ended December 31, 2022.
Impact Biomedical, Inc. and DSS BioHealth Holdings 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 December 31, 2022, the Company made no purchases of health and wellness products from DSS BioHealth Holdings Inc. For the nine months ended December 31, 2022, the Company’s purchases totaled $36,808.
K Beauty Research Lab. Co., Ltd
In the fiscal year ended March 31, 2022, a wholly owned subsidiary of the Company purchased skin care products manufactured by K Beauty Research Lab. Co., Ltd (“K Beauty”), a South Korean-based supplier of skin care products that is affiliated with Heng Fai Ambrose Chan, a Director of the Company, in the aggregate amount of $2.3 million. The Company’s affiliates operating in Asia intend to distribute skin care and other products in South Korea and other countries, including skin care products procured from K Beauty, as part of the Company’s previously announced strategic growth plans. During the three months ended December 31, 2022, the Company made no purchases of skin care products manufactured by K Beauty Research Lab and other items. For the nine months ended December 31, 2022, the Company made purchases in the amount of $1,572 of skin care products manufactured by K Beauty Research Lab.
Premier Packaging Corporation
Premier Packaging Corporation is a wholly owned subsidiary of the Company. Purchase orders to Premier Packaging Corporation, a subsidiary of DSS, to acquire printed packaging materials in the aggregate amount was $28,090 and $152,813 for the nine months ended December 31, 2022, and 2021, respectively.September 30, 2022.
Alchemist Holdings, LLC
In FebruarySeptember 2020, the Company Alchemist Holdings, LLC (“Alchemist”), and a former Company officer entered into a Settlement Accommodation Agreement (the “Accommodation Agreement”)and an Amended and Restated Founder Consulting Agreement pursuant to which Alchemistthe Company and the former Company officer agreed to transfersettle all existing disputes between them, the former officer agreed to continue to provide certain consulting services to the Company, 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 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 million shares of the Company’s Common Stock then held by Alchemist, and the Company retired such redeemed shares.agreed to pay certain amounts to the former officer. The Company recognized a settlement liability of $2.0 million in connection therewith.
In May 2022, the Company and certain of its subsidiaries, on the one hand, and Alchemist Holdings, LLC, the former officer discussed in the preceding paragraph 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 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 $ per share. DuringIn the nine monthsfiscal year ended DecemberMarch 31, 2022,2023, the Company measured and recognized the repurchase of its common stock at its fair value of $626,187652,278, 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. As of each September 30, 2023, and March 31, 2023, the settlement liability balance is $0.
The Company subleases warehouse and office space from Alchemist, until May 2022, a 10% shareholder of the Company. During the three and nine months ended December 31, 2022, rent expense associated with such sublease agreement was $26,007 and $77,787, respectively.
American Wealth Mining Corporation (formerly, 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 and nine months ended December 31, 2022, the Company recognized consulting fee income of $12,498 and 37,494, respectively.
In August 2022, the Company executed a non-binding letter of intent with American Wealth Mining Corporation (“AWM”), a related party, allowing AWM to be the exclusive franchisee of Hapi Café in the State of New York.
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 September 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.
On August 11, 2022, the Company executed a revolving credit promissory note with APB (“the APB Revolving Note”) pursuant to which the Company has access to advances with a maximum principal balance not to exceed the principal sum of $10 million. The APB Revolving Note is collateralized by the assets of the Company, and it bears interest at the annual rate of 8% and such interest shall be due and payable quarterly as it accrues on the outstanding balance. Interest payments on the loan are due and payable on the last day of each consecutive third calendar month until the maturity date of August 12, 2024. On December 9, 2022, APB and the Company mutually agreed to limit and/or end any further commitment by APB to fund or to readvance under the terms of the APB Revolving Note. As of December 31, 2022, the Company had $6.0 million outstanding under the APB Revolving Note.
Stock Warrants
Stock Warrants Issued to Directors, Officers and Employees
In July 2020,January 2022, the Company and Heng Fai Ambrose Chan,DSS who, together with its subsidiaries, was then a Directormajority shareholder of the Company, entered into a Stock Purchase and Share Subscriptionone-year Business Consulting Agreement (the “SPA“Consulting Agreement”) pursuant to which Mr. Chan invested $ millionthe DSS would provide to the Company certain consulting services, as defined in the Consulting Agreement. In connection with the Consulting Agreement, the Company in exchange for million sharesagreed to pay DSS and flat monthly fee of the Company’s Class A Common Stocksixty thousand dollars ($60,000) and DSS received a fully vested detachable Stock Warrant to purchase up to 10.050.0 million shares of the Company’s Class A Common Stock, at anthe exercise price of $0.200.0001 per share. On the effective date of the Consulting Agreement, the closing price of the Company’s common stock was $ per share and the fair value of the Stock Warrant was $3.5 million. The fair value of the Stock Warrant was amortized into consulting expense over the term of one year. During the three months ended September 30, 2023, and 2022, the Company recognized consulting expense of $0 and $872,603 million, respectively, in connection with the Consulting Agreement. In July 2020, Mr. Chan assignedFebruary 2023, the Company issued million shares of its Common Stock Class A to DSS all interests in connection with exercise of the SPA Agreement and the transactions contemplated in the SPA Agreement were completed. Mr. Chan is also a Director of DSS.Stock Warrant.
In October 2017,September 2022, the Company issuedand DSSI entered into a convertible noteSecurities Purchase Agreement (the “SPA”) pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $50,00027.0 to HWH International, Inc. (“HWH”million (the “2022 Note”) in favor of DSSI and (b) a detachable stockWarrant to purchase up to 818,181,819 shares of the Company’s Class A Common Stock (the “Warrant”), at $0.033 per share. At any time during the term of the 2022 Note, all or part of the Note was convertible into up to shares of the Company’s Class A Common Stock, at the option of the holder. In connection with the SPA, DSSI surrendered to the Company all DSSI’s rights pursuant to: (a) the Convertible Promissory Note in the principal amount of $30.0 million discussed in the preceding paragraph, and (b) the detachable Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock discussed in the preceding paragraph. In March 2023, the parties entered into a Securities Exchange and Amendment Agreement pursuant to which the parties agreed to amend the 2022 Note by removing the conversion rights granted by the 2022 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 as a deemed dividend in the Company’s financial statements in the fiscal year ended March 31, 2023.
In the fiscal year ended March 31, 2023, the Company issued a fully vested warrant to purchase up to shares of the Company’s Common Stock, at anthe exercise price of $0.150.0001 per share.share, to the Company’s CEO John “JT” Thatch. The Note is convertible into 333,333 sharesfair value 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 ofwarrant on the Company. On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant forgrant date was $78,636109,780, which amount represents the principal plus accrued interest. The detachable stock warrant to purchase the additional shares of the Company’s Common Stock was forfeited by the Holder upon payment. The Company made the payment to HWH on August 9, 2022.
During fiscal year 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.
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During the three months ended December 31,September 30, 2023, and 2022, and 2021, the Company recognized a compensatory gain of $39,3750 and $154,488114,960, respectively, in connection with grants with a variable exercise price after service is completed. During the nine months ended December 31, 2022, and 2021, the Company recognized a gainAs of $207,210 and 1,935,588, respectively, in connection with grantsSeptember 30, 2023, there are no warrants outstanding with a variable exercise price after service is completed.price.
NOTE 1516 – LEASES
The Company leases space for its offices and warehouse space, under lease agreements classified as “operating leases’” as defined in ASC Topic 842.
The Company leases space for its corporate headquarters, warehouse space, automobiles, and office and other equipment, under lease agreements classified as operating leases. The Company has remaining lease terms of approximately 1 to 10 years on the remaining Leases. Leases with an initial term in excess of 12 months are recognized on the consolidated balance sheet based on the present value of future lease payments over the defined lease term at the lease commencement date. Future lease payments were discounted using an implicit rate of 10% to 12% in connection with most leases.
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 | December 31, 2022 | March 31, 2022 | Classification | September 30, 2023 | March 31, 2023 | ||||||||||||||
| Operating leases | Right-of-use assets, net | $ | 458,768 | $ | 593,389 | Right-of-use assets, net | $ | 426,297 | $ | 448,240 | ||||||||||
| Total lease assets | $ | 458,768 | $ | 593,389 | $ | 426,297 | $ | 448,240 | ||||||||||||
| Liabilities | ||||||||||||||||||||
| Operating leases | Accrued and other current liabilities | $ | 78,266 | $ | 134,578 | Accrued and other current liabilities | $ | 44,650 | $ | 41,385 | ||||||||||
| Operating leases | Lease liability, long-term | 413,587 | 461,515 | Lease liability, non-current | 416,277 | 440,478 | ||||||||||||||
| Total lease liabilities | $ | 491,853 | $ | 596,093 | $ | 460,927 | $ | 481,863 | ||||||||||||
The following information pertains to the Company’s leases for the periods indicated:
SCHEDULE OF OPERATING LEASE COSTS
Three Months Ended December 31, | Three Months Ended September 30, | |||||||||||||||||||
| Lease cost | Classification | 2022 | 2021 | Classification | 2023 | 2022 | ||||||||||||||
| Operating lease cost | General and administrative expenses | $ | 36,920 | $ | 54,463 | General and administrative expenses | $ | 28,289 | $ | 21,831 | ||||||||||
| Operating lease cost | Depreciation and amortization | - | - | Depreciation and amortization | - | - | ||||||||||||||
| Operating lease cost | Interest expense, net | - | - | Interest expense, net | - | - | ||||||||||||||
| Total lease cost | $ | 36,920 | $ | 54,463 | $ | 28,289 | $ | 21,831 | ||||||||||||
Nine Months Ended December 31, | ||||||||||
| Lease cost | Classification | 2022 | 2021 | |||||||
| Operating lease cost | General and administrative expenses | $ | 81,212 | $ | 349,165 | |||||
| Operating lease cost | Depreciation and amortization | - | - | |||||||
| Operating lease cost | Interest expense, net | - | - | |||||||
| Total lease cost | $ | 81,212 | $ | 349,165 | ||||||
| Six Months Ended September 30, | ||||||||||
| Lease cost | Classification | 2023 | 2022 | |||||||
| Operating lease cost | General and administrative expenses | $ | 55,823 | $ | 45,009 | |||||
| Operating lease cost | Depreciation and amortization | - | - | |||||||
| Operating lease cost | Interest expense, net | - | - | |||||||
| Total lease cost | $ | 55,823 | $ | 45,009 | ||||||
The Company’s lease liabilities are payable as follows:
SCHEDULE OF OPERATING LEASE LIABILITY PAYABLE
| Twelve months ending September 30, | Amount | Amount | ||||||
| 2023 | $ | 80,439 | ||||||
| 2024 | 99,367 | $ | 49,336 | |||||
| 2025 | 102,147 | 100,757 | ||||||
| 2026 | 104,926 | 103,536 | ||||||
| 2027 | 107,706 | 106,316 | ||||||
| 2028 | 109,095 | |||||||
| Thereafter | 252,241 | 196,441 | ||||||
| Total remaining payments | 746,826 | 665,481 | ||||||
| Less imputed interest | 254,973 | (204,554 | ) | |||||
| Total lease liability | $ | 491,853 | $ | 460,927 | ||||
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NOTE 1617 – COMMITMENTS AND CONTINGENCIES
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 December 31, 2022.September 30, 2023.
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, 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 Plaintiffs in 2015. The Company and its affiliated entities filed an answer denying the three investors’ claims. Plaintiffs filed a First Amended Complaint on October 14, 2021. The Company and its affiliated entities responded in November 2021 by filing a Motion to Dismiss the claims contained in the Amended Complaint. The Motion was granted on July 20, 2022, by Court Order dismissing with prejudice the Company and all affiliated entities from the lawsuit. In early August 2022, Plaintiffs on their own motion moved to dismiss all claims against the remaining parties in the case to enable the Order of Dismissal to become an appealable, final Order. On September 7, 2022, Plaintiffs filed a Notice of Appeal to the United States Court of Appeals for the Fifth Circuit. |
| (b) | Case No. 4:21-cv-00026; Elepreneurs Holdings, LLC d/b/a Elepreneur, LLC, Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC, and SHRG IP Holdings, LLC v. Lori Ann Benson, Andrea Althaus and Lindsey Buboltz, pending in the United States District Court for the Eastern District of Texas. On December 31, 2020, the Company filed suit against three former distributors and obtained injunctive relief from the 429th Judicial District of Collin County, Texas. The lawsuit was removed by the three former distributors to federal court. The Company subsequently obtained injunctive relief from the federal court. The parties settled their disputes, and a Joint Motion for Final Dismissal was |
| (c) | 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 March 9, 2022, the Company filed suit against a competitor and former distributors. On |
| 25 |
| (d) | |
Case No. 9:22-cv-00146; Travel Gig, LLC and Happitravel, LLC v. Sharing Services Global Corporation, SHRG IP Holdings, LLC; Global Travel Destinations, LLC., and Does 1-25, pending in the United States District Court for the District of Montana. On September 7, 2022, Plaintiffs filed a lawsuit against the Company and two affiliated entities alleging trademark infringement concerning the Company’s affiliated travel entity. Plaintiffs filed a motion seeking a Preliminary Injunction and the Court set a hearing on the motion for November 1, 2022. | |
| (e) | 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. On April 10, 2023, this legal proceeding was settled between the parties. |
| (f) | 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. |
NOTE 1718 - 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:
SCHEDULE OF VALUATION HIERARCHY FINANCIAL ASSETS AND LIABILITIES
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| December 31, 2022 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in unconsolidated entities, net | $ | 178,727 | $ | - | - | 178,727 | ||||||||||
| Investment in marketable securities | 4,251,225 | 4,251,225 | ||||||||||||||
| Total assets | $ | 4,429,952 | $ | 4,251,225 | $ | - | $ | 178,727 | ||||||||
| Liabilities | ||||||||||||||||
| Convertible notes payable | $ | 12,109,091 | $ | - | $ | 12,109,091 | $ | - | ||||||||
| Total liabilities | $ | 12,109,091 | $ | - | $ | 12,109,091 | $ | - | ||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| March 31, 2022 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in unconsolidated entities, net | $ | 5,063,940 | $ | - | $ | - | $ | 5,063,940 | ||||||||
| Total assets | $ | 5,063,940 | $ | - | $ | - | $ | 5,063,940 | ||||||||
| Liabilities | ||||||||||||||||
| Convertible notes payable | $ | 5,840,000 | $ | - | $ | 5,790,000 | $ | 50,000 | ||||||||
| Total liabilities | $ | 5,840,000 | $ | - | $ | 5,790,000 | $ | 50,000 | ||||||||
NOTE 18 - SUBSEQUENT EVENTS
In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions subsequent to the balance sheet date of December 31, 2022, for potential recognition or disclosure through the date of this report. Except as disclosed below, no other events require adjustment to or disclosure in the Company’s unaudited condensed consolidated financial statements.
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||
| September 30, 2023 | |||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||
| Assets | |||||||||||||||||
| Investment in | $ | $ | - | $ | - | - | |||||||||||
| Total assets | $ | - | $ | - | $ | - | $ | - | |||||||||
| Liabilities | |||||||||||||||||
| Notes payable | $ | - | $ | - | $ | - | $ | - | |||||||||
| Total liabilities | $ | - | $ | - | $ | - | $ | - | |||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| As of March 31, 2023 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in unconsolidated entities | $ | 206,231 | $ | - | $ | - | $ | 206,231 | ||||||||
| Total assets | $ | 206,231 | $ | - | $ | - | $ | 206,231 | ||||||||
| Liabilities | ||||||||||||||||
| Notes payable | $ | 24,827,086 | $ | - | $ | 24,827,086 | - | |||||||||
| Total liabilities | $ | 24,827,086 | $ | - | $ | 24,827,086 | $ | - | ||||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following section discusses management’s views of the consolidated 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 Annual Report on Form 10-K for the fiscal year ended March 31, 2022,2023, and (b) our unaudited 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 | Nine Months Ended | |||||||||||||||||||||||||||||||
| December 31, 2022 | December 31, 2021 | Increase (Decrease) | % Change | December 31, 2022 | December 30, 2021 | Increase (Decrease) | % Change | |||||||||||||||||||||||||
| Net sales | $ | 3,245,903 | $ | 7,110,532 | (3,864,629 | ) | -54.4 | % | $ | 12,737,673 | $ | 28,195,359 | $ | (15,457,686 | ) | -54.8 | % | |||||||||||||||
| Gross profit | 1,602,792 | 4,781,949 | (3,179,157 | ) | -66.5 | % | 7,677,757 | 19,588,526 | (11,910,769 | ) | -60.8 | % | ||||||||||||||||||||
| Operating expenses | (5,606,866 | ) | (7,831,883 | ) | 2,225,017 | -28.4 | % | (19,511,086 | ) | (28,273,529 | ) | 8,762,443 | -31.0 | % | ||||||||||||||||||
| Operating loss | (4,004,074 | ) | (3,049,934 | ) | (954,140 | ) | 31.3 | % | (11,833,329 | ) | (8,685,003 | ) | (3,148,326 | ) | 36.3 | % | ||||||||||||||||
| Non-Operating (expense), net | (6,916,748 | ) | (2,065,155 | ) | (4,851,593 | ) | 234.9 | % | (19,720,337 | ) | (3,199,103 | ) | (16,521,234 | ) | 516.4 | % | ||||||||||||||||
| Loss before income taxes | (10,920,822 | ) | (5,115,089 | ) | (5,805,733 | ) | 113.5 | % | (31,553,666 | ) | (11,884,106 | ) | (19,669,560 | ) | 165.5 | % | ||||||||||||||||
| Income tax (benefit) expense | 104,129 | 1,825,073 | (1,720,944 | ) | -94.3 | % | (789,803 | ) | 1,318,827 | (2,108,630 | ) | -159.9 | % | |||||||||||||||||||
| Net loss | $ | (11,024,951 | ) | $ | (6,940,162 | ) | $ | (4,084,789 | ) | 58.9 | % | $ | (30,763,863 | ) | $ | (13,202,933 | ) | $ | (17,560,930 | ) | 133.0 | % | ||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | Increase (Decrease) | % Change | September 30, 2023 | September 30, 2022 | Increase (Decrease) | % Change | |||||||||||||||||||||||||
| Net sales | $ | 2,408,704 | $ | 4,188,152 | $ | (1,779,448 | ) | -42.5 | % | $ | 5,286,825 | $ | 9,491,770 | $ | (4,204,945 | ) | -44.3 | % | ||||||||||||||
| Gross profit | 1,738,901 | 2,428,375 | (689,474 | ) | -28.4 | % | 3,771,193 | 6,074,966 | (2,303,773 | ) | -37.9 | % | ||||||||||||||||||||
| Operating expenses | (2,859,297 | ) | (6,595,518 | ) | 3,736,221 | -56.6 | % | (6,567,857 | ) | (13,904,221 | ) | 7,336,364 | -52.8 | % | ||||||||||||||||||
| Operating loss | (1,120,396 | ) | (4,167,142 | ) | 3,046,746 | -73.1 | % | (2,796,664 | ) | (7,829,255 | ) | 5,032,591 | -64.3 | % | ||||||||||||||||||
| Non-Operating (expense), net | (346,496 | ) | (14,772,836 | ) | 14,426,339 | -97.7 | % | (1,082,484 | ) | (12,803,590 | ) | 11,721,106 | -91.5 | % | ||||||||||||||||||
| Loss before income taxes | (1,466,892 | ) | (18,939,978 | ) | 17,473,086 | -92.3 | % | (3,879,148 | ) | (20,632,845 | ) | 16,753,697 | -81.2 | % | ||||||||||||||||||
| Income tax (benefit) expense | (12,102 | ) | (554,075 | ) | 541,973 | -97.8 | % | - | (893,932 | ) | 893,932 | -100.0 | % | |||||||||||||||||||
| Net loss | $ | (1,454,790 | ) | $ | (18,385,903 | ) | $ | 16,931,113 | -92.1 | % | $ | (3,879,148 | ) | $ | (19,738,913 | ) | $ | 15,859,765 | -80.3 | % | ||||||||||||
Highlights for the Three Months Ended December 31, 2022:months ended September 30, 2023:
| ● | For the three months ended | |
| ● | For the three months ended | |
| ● | For the three months ended | |
| ● | For the three months ended | |
| ● | For the three months ended | |
| ● | For the three months ended | |
| ● | For the | |
| ● | In August 2023, Sharing Services and DSSI entered into a debt exchange agreement pursuant to which DSSI agreed to cancel the $27.0 million note dated June 15, 2022, including the aggregate principal amount of the note and unpaid interest of approximately $26.2 million in exchange for 26,000 shares of Sharing Services Series D Preferred Stock, par value $0.0001 per share. | |
| ● | In September 2023, Sharing Services qualified and is eligible for a U.S. government ERTC (employee retention tax credit) for $1.8 million. Based on this, the Company applied for a bridge loan and received net proceeds of approximately $1.2 million. |
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. Sharing Services’ combined platform leverages the capabilities and expertise of various companies that market and sell products direct to the consumer through independent contractors. The Company’s new shared service platform will service this direct selling “gig economy” sector by providing needed services (such as equity and inventory financing, advisory services, mobile application tools, merchant processing services, commercial insurance, and event planning) to smaller direct sales companies initially in the U.S.
Currently, the Company, through its subsidiaries, markets and distributes its health and wellness and other products primarily in the U.S. and Canada using a direct selling business model. TheIn addition, the Company’s U.S. subsidiaries market our products and services through an independent sales force, using their proprietary websites, including: www.elevacity.com and www.thehappyco.com. In September 2021, the Company, through a subsidiary, commenced operations in the Republic of Korea (South Korea).
The Company was incorporated in the State of Nevada on April 24, 2015.
As further discussed below, the Company intends to continue to grow its business both organically and by making strategic acquisitions from time to time of businesses and technologies that augment its product portfolio, complement its business competencies, and fit its growth strategy.
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.
Industry and Business Trends
The information in “Industry and Business Trends” included in ITEM 1 — “Business” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022,2023, is incorporated herein by reference.
Strategic Profitable Growth Initiatives
The Company intends to continue to grow its business by pursuing a multipronged growth strategy, that includes: (a) expanding its product offerings, both within the health and wellness category and in new product categories, (b) expanding its direct-to-consumer geographic footprint (primarily in Asia), and (c) expandinglaunching its previously announced membership-based consumer travel products line in the U.S. and 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.
Continuing Uncertainty Regarding the Recent COVID-19 Pandemic
In 2020, in response to the COVID-19 pandemic, governments in the countries where our products are sold mandated or recommended various containment measures, including selective business closures, social distancing, quarantine, stay-at-home or shelter-in-place directives, and limitations on, or cancellations of, larger meetings and other public events. We believe that the actual impact of the health crisis, and/or actions taken to contain the spread of the virus, have had and continue to have an adverse impact on the economies in the geographies we serve. Consumer demand for discretionary products such as ours is sensitive to significant downturns in the economy, increases in unemployment or decreases in perceived employment security, and decreases in consumer sentiment in general.
In efforts to protect our customers, distributors, employees, and other business partners, in 2020, we instituted several preventive measures, including temporarily transitioning a significant number of our corporate employees to working remotely, increasing efforts to clean and sanitize our business facilities, increasing employee safety communication, and transitioning our sales conventions to a virtual convention platform. While these temporary measures are increasingly being eased or fully reversed at the time of this Quarterly Report, we believe these necessary, temporary measurements are likely to have had an adverse impact on our business.
As a result of the foregoing, we cannot predict with certainty the scope, duration, and ultimate impact of this public health emergency in the countries where we operate, including its impact on the economy, but we believe these conditions are likely to have had and continue to have a material adverse impact on our business, financial condition, cash flows, and results of operations (including revenues and profitability), and those of our key suppliers.
The COVID-19 pandemic 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 December 31, 2022,September 30, 2023, Compared to the Three months ended December 31, 2021September 30, 2022
Net Sales
For the three months ended December 31, 2022,September 30, 2023, our consolidated net sales decreased by $3.9$1.8 million, or 54.4%42.5%, to $3.2$2.4 million, compared to the three months ended December 31, 2021.September 30, 2022. The decrease in net sales mainly reflects: (a) continuation of the decline in consumer orders that we experienced since the fourth quarter of the fiscal year 2020, (b) a decline in independent distributor orders, in the number of new independent distributors and in the number of continuing active distributors, resulting, in part, from recent product reformulations and increased competition for independent distributors, and (c) the generally adverse impact on consumer buying trends resulting from the recent 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 $3.9$1.8 million decrease in consolidated net sales primarily reflects a decrease in the number of comparable product units sold, partially offset by sales of products introduced since December 31, 2021, of approximately $1.2 million.sold.
During the three months ended December 31,September 30, 2023, and 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 nine months ended December 31, 2022, approximately 63% of the Company’s net sales were to customers (including 39% to recurring customers, refer herein as “SmartShip” sales, and approximately 24% to new customers) and approximately 37% of the Company’s net sales were to independent distributors.
Gross Profit
For the three months ended December 31, 2022,September 30, 2023, our consolidated gross profit decreased by $3.2$0.7 million, or 66.5%,28.4 %, to $1.6$1.7 million, compared to the three months ended December 31, 2021,September 30, 2022, and our consolidated gross margins were 49.4%72.2% and 67.3%58%, respectively. For the three months ended December 31, 2022,September 30, 2023, gross margin was affected by an increasebenefited from a decrease in shipping expenses and promotional pricing, as a percentage of sales.
Selling and Marketing Expenses
For the three months ended December 31, 2022,September 30, 2023, our consolidated selling and marketing expenses decreased by $3.3$1.3 million, to $0.9$0.7 million, or 28.6%30.8% of consolidated net sales, compared to $4.2$2.0 million, or 59.3%48.7% of consolidated net sales, for the three months ended December 31, 2021.September 30, 2022. The $1.3 million decrease in consolidated selling and marketing expenses is due primarily to lower sales commissions of $2.6$0.7 million (which reflects the decrease in our consolidated net sales discussed above).
General and Administrative Expenses
For the three months ended December 31, 2022,September 30, 2023, 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) increaseddecreased by approximately $1.1$2.4 million, to $4.7$2.0 million, or 144.1%87.9% of consolidated net sales compared to $3.6$4.6 million, or 50.8%108.8% of consolidated net sales, for the three months ended December 31 , 2021.September 30, 2022. The increase$2.4 million decrease in consolidated general and administrative expenses was primarily driven by higherdue to lower consulting expenses offset by a decrease inexpense of approximately $1.7 million, and lower employee compensation and compensation-related benefits and legal expenses.of $0.9 million due to less headcount year over year.
Interest Expense, netNet
For the three months ended December 31, 2022,September 30, 2023, our consolidated interest expense net was 3.3 million, including$387,907, excluding amortization of debt discount and amortization of deferred financing costs interest income, and other expenses associated with borrowings from “DSSI” and related parties.of $1.6 million.
For the three months ended December 31, 2021, September 30, 2022, our consolidated interest expense was $3.1 including$736,990, excluding amortization of debt discount and amortization of deferred financing costs of $2.6 million, and interest income and other expenses associated with borrowings from “DSSI” and related parties.of $101,981.
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Other Income
For the three months ended September 30, 2023, Sharing Services qualified and is eligible for a U.S. government ERTC (employee retention tax credit) for $1.8 million.
Net Other Non-Operating ExpensesGain (loss) on employee warrants liability
For the three months ended December 31, 2022, we had net consolidated non-operating expenses of approximately $6.9 million.September 30, 2023, no compensatory gain or loss on employee warrants was recognized. For the three months ended December 31, 2021, our consolidated non-operating incomeSeptember 30, 2022, $52,875 of compensatory gain on employee warrants was approximately $2.1 million.recognized.
Unrealized Gain (Loss)Loss on Investments in Unconsolidated Entities and Marketable Securities
For the three months ended December 31, 2022, net unrealized losses, before income tax, in connection with our investments in unconsolidated entities and marketable securities were $3.6 million.
For the three months ended December 31, 2021, net unrealized gains, before income tax, in connection with our investment in unconsolidated entities were $1.2 million.
Gain on Employee Warrants LiabilityExtinguishment of Debt
ForIn August 2023, Sharing Services and DSSI entered into an agreement pursuant to which DSSI agreed to cancel the three months ended December 31,promissory note dated June 15, 2022, weincluding the aggregate principal amount of the Note and unpaid interest of $26.2 million in exchange for 26,000 shares of Sharing Services Series D Preferred Stock, par value $0.0001 per share. The Company recognized a compensatory gainloss on extinguishment of $39,375, compared to $154,488 for the three months ended December 31, 2021,debt of $188,842 in connection with employee warrants with a variable exercise price after service was completed.therewith.
Income Tax Benefit(Benefit) Provision
Income tax benefit(benefit) provision includes 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.
During the three months ended December 31,September 30, 2023, the Company recognized a current federal income tax benefit of $3,548, and a state and local tax provision of $85. During the three months ended September 30, 2022, the Company had a state and local tax benefit of $22,849$3,294 and a provision for deferred federal income taxes of $348,236 and a benefit for current federal income taxes of $429,516.$550,781.
Net Loss and Loss per Share
As a result of the foregoing, for the three months ended December 31, 2022,September 30, 2023, our consolidated net loss was $11.0$1.5 million, compared to $6.9$18.4 million for the three months ended December 31, 2021.September 30, 2022. For the three months ended December 31,September 30, 2023, and September 30, 2022, and December 31, 2021, our diluted loss per share was $0.04$0.004 and $0.04,$0.07, respectively.
NineSix months ended December 31, 2022,September 30, 2023, Compared to the NineSix months ended December 31, 2021September 30, 2022
Net Sales
For the ninesix months ended December 31, 2022,September 30, 2023, our consolidated net sales decreased by $15.5$4.2 million, or 54.8%44.3%, to $12.7$5.3 million, compared to the ninesix months ended December 31, 2021.September 30, 2022. The decrease in net sales mainly reflects: (a) continuation of the decline in consumer orders that we experienced since the fourth quarter of the fiscal year 2020, (b) a decline in independent distributor orders, in the number of new independent distributors and in the number of continuing active distributors, resulting, in part, from recent product reformulations and increased competition for independent distributors, and (c) the generally adverse impact on consumer buying trends resulting from the recent 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 $15.5$4.2 million decrease in consolidated net sales primarily reflects a decrease in the number of comparable product units sold, partially offset by sales of products introduced since December 31, 2021, of approximately $800,000.sold.
During the ninesix months ended December 31,September 30, 2023, and 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 nine months ended December 31, 2022, approximately 63% of the Company’s net sales were to customers (including 39% to recurring customers, refer herein as “SmartShip” sales, and approximately 24% to new customers) and approximately 37% of the Company’s net sales were to independent distributors.
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Gross Profit
For the ninesix months ended December 31, 2022,September 30, 2023, our consolidated gross profit decreased by $11.9$2.3 million, or 60.8%37.9%, to $7.7$3.8 million, compared to the ninesix months ended December 31, 2021,September 30, 2022, and our consolidated gross margins were 60.3%71.3% and 69.5%64%, respectively. For the ninesix months ended December 31, 2022,September 30, 2023, gross margin was affected bybenefited from a decrease in shipping expenses and promotional pricing, as a percentage of sales.
Selling and Marketing Expenses
For the ninesix months ended December 31, 2022,September 30, 2023, our consolidated selling and marketing expenses decreased by $8.7$2.6 million, to $5.7$2.2 million, or 44.9%40.9% of net sales compared to $14.4$4.8 million, or 51.0%50.5% of net sales for the ninesix months ended December 31, 2021.September 30, 2022. The decrease in consolidated selling and marketing expenses is due primarily to lower sales commissions of $8.6$1.8 million (which reflects decrease in our consolidated net sales discussed above) partially offset by higherand lower sales convention expenses of approximately $454,465 (as we resumed holding some in-person conventions).$0.5 million.
General and Administrative Expenses
For the ninesix months ended December 31, 2022,September 30, 2023, 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 approximately $94,370$4.7 million to $13.8$4.4 million, or 108.2%83% of consolidated net sales compared to $13.9$9.1 million, or 49.2%96% of consolidated net sales, for the ninesix months ended December 31 , 2021.September 30, 2022. The decrease in consolidated general and administrative expenses was primarily driven by lower professional fees,and legal expenses by $3.1 million, decrease on employee compensation and related benefits and legal expenses.by $1.4 million.
Interest Expense net
For the ninesix months ended December 31, 2022,September 30, 2023, our consolidated interest expense was $9.8$1.1 million, includingexcluding amortization of debt discount and amortization of deferred financing costs of $2.0 million, and interest income and other expenses associated with borrowings from “DSSI” and related parties.of $290,024.
For the ninesix months ended December 31, 2021,September 30, 2022, consolidated interest expense was $9.2$6.4 million, including amortization of debt discount and deferred financing cost, interest income, and other expenses associated with borrowings from “DSSI” and related parties.
Other Non-operating Income/Expenses
For the ninesix months ended December 31,September 30, 2023, our net consolidated non-operating income, includes litigation settlements and other non-operating income of $103,434. For the six months ended September 30, 2022, our net consolidated non-operating income, includes litigation settlements and other non-operating income of $133,199. For the nine months ended December 31, 2021, consolidated other non-operating expenses (including litigation settlements) were $59,516.$139,798.
Gain (loss) on employee warrants liability
For the ninesix months ended December 31,September 30, 2023, no compensatory gain or loss on employee warrants was recognized. For the six months ended September 30, 2022, we recognized a compensatory gain of $207,210, compared to $1.9 million for the nine months ended December 31, 2021, in connection with employee warrants with a variable exercise price after service was completed.$167,835.
GainLoss on Extinguishment of Debt
Effective June 30, 2023, the Company, and DSSI, entered into three transactions whereby such transactions offset certain liabilities through the sale of assets. The Company recognized the transactions as extinguishment of debt of with a gain of $150,634, before income tax, in connection therewith. In August 2023, Sharing Services and DSSI entered into an agreement pursuant to which DSSI agreed to cancel the promissory note dated June 15, 2022, including the aggregate principal amount of the Note and unpaid interest of $26.2 million in exchange for 26,000 shares of Sharing Services Series D Preferred Stock, par value $0.0001 per share. The Company recognized a loss on extinguishment of debt of $188,842 in connection therewith.
For the nine-monthsix-month ended DecemberSeptember 31, 2022, no amounts were incurred related to extinguishment of debt. In June of 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.
Income Tax Benefit
During the ninesix months ended December 31,September 30, 2023, no amounts were recognized as income tax provision or benefit.
During the six months ended September 30, 2022, the Company recognized a provision for deferred taxes and federal taxestax benefit of $799,748approximately $880,000 and a state and local tax benefit of $9,945.
During the nine months ended December 31, 2021, the Company recognized a consolidated provision for current federal income taxes of $5.2 million, net of a valuation allowance recognized of $4.5 million, and a consolidated provision for state and local taxes of $109,241 and a consolidated deferred income tax benefit of $4.0 million.
$12,904.
Net Loss and Loss per Share
As a result of the foregoing, for the ninesix months ended December 31, 2022,September 30, 2023, our consolidated net loss was $30.8$3.9 million, compared to $13.2$19.7 million for the ninesix months ended December 31, 2021.September 30, 2022. For the ninesix months ended December 31,September 30, 2023, and September 30, 2022, and December 31, 2021, our diluted loss per share was $0.12$0.01 and $0.07, 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). We had a deficiency in our working capital of approximately $23.2$2.0 million as of December 31, 2022, and a working capital of approximately $7.4September 30, 2023, compared to $33.9 million as of March 31, 2022. 2023.
As of DecemberSeptember 30, 2023, and March 31, 2022,2023, our cash and cash equivalents were $3.1 million.$1.4 million and $3.0 million, respectively. Based upon the current level of operations and anticipated investments necessary to grow our business, we believe that anticipated funds from operations will likely be sufficient to meet our working capital requirements over the next 12 months.
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We have implemented measures to restructure our business operations and reduce our monthly cash burns and operating loss. Such measures include, and are not limited to, headcount reduction and elimination of certain overhead and consulting fees. Based upon the current level of operations and anticipated investments necessary to sustain/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 ninesix months ended December 31, 2022,September 30, 2023, compared to the ninesix months ended December 31, 2021:September 30, 2022:
| Year Ended December 31, | Six Months Ended September 30, | |||||||||||||||||||
| 2022 | 2021 | Change | 2023 | 2022 | ||||||||||||||||
| Net cash used in operating activities | $ | (8,845,938 | ) | $ | (13,178,848 | ) | $ | 4,332,910 | $ | (2,970,305 | ) | $ | (5,436,809 | ) | ||||||
| Net cash used in investing activities | (11,530,898 | ) | (12,213,306 | ) | 682,408 | - | (11,504,734 | ) | ||||||||||||
| Net cash provided by financing activities | 6,501,659 | 33,073,607 | (26,571,948 | ) | 1,200,000 | 6,527,264 | ||||||||||||||
| Impact of currency rate changes in cash | (35,864 | ) | (45,331 | ) | 9,467 | 160,759 | (150,122 | ) | ||||||||||||
| Net (decrease) increase in cash and cash equivalents | �� | $ | (13,911,041 | ) | $ | 7,636,122 | $ | (21,547,163 | ) | |||||||||||
| Decrease in cash and cash equivalents | $ | (1,609,546 | ) | $ | (10,564,401 | ) | ||||||||||||||
Net Cash Used in Operating Activities
For the ninesix months ended December 31, 2022,September 30, 2023, net cash used in operating activities was $8.8$3.0 million, compared to net cash used in operating activities of $13.7$5.4 million for the ninesix months ended December 31, 2021.September 30, 2022. The $4.3$2.5 million changedecrease was due primarily to a decline in gross profit, excludingoperating losses of $2.3 million (excluding non-cash items, such as depreciation and amortization, stock-based compensation gain,expense, provision for obsolete inventory losses, amortization of debt discount, unrealized gain (loss) on investments, losses on impairment of investments in unconsolidated entities a noteand notes receivable, and the gaingains on extinguishment of debt. In addition, the change in net cash used in operating activities reflectsdebt), and a change in operating assets and liabilities of approximately $6.3 million driven by the normal recurring operations of the business.$207,021.
Net Cash Used in Investing Activities
For the ninesix months ended December 31, 2022,September 30, 2023, net cash used in investing activities was $11.5 million,$0, compared to $12.2$11.5 million for the ninesix months ended December 31, 2021. Included in theSeptember 30, 2022. The $11.5 million of net cash outflowchange was cash paid for marketable securities of approximately $9.5 million during the nine months ended December 31, 2022.due to lower capital expenditures.
Net Cash Provided by Financing Activities
For the ninesix months ended December 31, 2022,September 30, 2023, net cash provided by financing activities decreased by $26.6was $1.2 million, compared to $6.5 million compared to $33.1 million for the ninesix months ended December 31, 2021, primarilySeptember 30, 2022. The decrease was due to refinancinglower proceeds from loans under promissory notes, net of the June 2022 DSSI loan.loan repayments, of $7.5 million. The decrease was partially offset by lower Sharing Services common stock received in connection with a litigation settlement of $1.0 million.
Impact of currency rate changes in cash
For the ninesix months ended December 31, 2022,September 30, 2023, the impact of currency rate changes in cash was negative $35,864$160,759, compared to negative $45,331$150,122 for the ninesix months ended December 31, 2021.September 30, 2022.
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Legal Proceedings
The information contained in Note 16, COMMITMENTS AND CONTINGENCIES - Legal Proceedings, of the Notes to the Unaudited 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.
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 of 2021, the Company was formally notified by the lender that the Company’s obligations under the loan had been forgiven effective May 25, 2021. The loan forgiveness applies to all principal and interest accrued through the loan forgiveness effective date.
Convertible Notes from Related Parties
Decentralized Sharing Systems, Inc. (“DSSI”)
OnIn April 5, 2021, the Company and Decentralized Sharing Systems, Inc. (“DSSI”)DSSI which, together with DSS, Inc., is a majoritymajor 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 was 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. As further discussed below, the Note and the detachable Warrant were redeemed in September 2022.
On June 15,In September 2022, the Company and DSSI entered into an agreementa Securities Purchase Agreement (the “SPA”), pursuant to which the Company issued to DSSI:issued: (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 warrantWarrant to purchase up to 818,181,819 shares of the Company’s Class A Common Stock (the “Warrant”), at the exercise price of $0.033 per share.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 convertedwas convertible 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, andIn connection with SPA, DSSI surrendered to the Company all DSSI’s rights pursuant to theto: (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 the(b) a certain detachable warrantWarrant 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,note.
In March 2023, the Company and DSSI entered into a Securities Exchange and Amendment Agreement pursuant to which the parties agreed to amend the 2022 Note by removing the conversion rights granted by the 2022 Note.
On February 3, 2023, the Company mutually agreed with DSS to enter into a Letter Agreement (the “DSS Letter
Agreement”), pursuant to which the Company and DSS have agreed to terminate and release all obligations of the Consulting Agreement effective as discussedof December 31, 2022. In accordance with the DSS Letter Agreement, the Company also agreed to issue 33,333,333 shares of the Company’s Common Stock in lieu of cash payment to satisfy the accrued and unpaid service fees equal to $700,000 owed to DSS under the Consulting Agreement.
On February 28, 2023, the Company and DSSI mutually agreed in a Letter Agreement (the “First DSSI Letter Agreement”) to a mutual settlement of the interest accrued on the 2022 Note issued by the Company to DSSI. In accordance with the DSSI Letter Agreement, the Company agreed to issue 26,285,714 shares of the Company’s Common Stock, at a price per share of $0.021 in lieu of cash payment to satisfy the accrued and unpaid interest through and including December 31, 2022, in the preceding paragraph.amount of $552,000 owed to DSSI.
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On April 17, 2023, the Company and DSSI mutually agreed in a subsequent Letter Agreement (the “Second DSSI Letter Agreement”) to a mutual settlement of the interest accrued on the 2022 Note between January 1, 2023, through and including March 31, 2023. In accordance with the Second DSSI Letter Agreement, the Company agreed to issue 28,877,005 shares of the Company’s Common Stock, at a price per share of $0.0187 in lieu of cash payment to satisfy the accrued and unpaid interest between January 1, 2023, through and including March 31, 2023, in the amount of $539,806 owed to DSSI.
On May 4, 2023, DSS and DSSI distributed, in the aggregate, 280,528,500 shares of SHRG they then held to DSS, Inc. shareholders in connection with the Form S-1 (file no. 333-271184) initially filed with the Securities and Exchange Commission on April 7, 2023, and declared effective on April 25, 2023. Accordingly, after the distribution, DSS ceased to be a majority shareholder of the Company.
On August 31, 2023, the Company and DSSI executed a debt exchange agreement whereby DSSI cancelled the $27 million loan and accepted 26,000 shares of the Company’s Series D Preferred Stock, $0.0001 par value per share (“Preferred D Stock”) in exchange for the cancellation of the $27.0 million loan. Pursuant to the debt exchange agreement, the principal amount together with all unpaid interest, totaling $26,169,367.33 was deemed to be repaid. The holder of Preferred D Stock is entitled to receive dividends in cash valued at a rate of 25% per annum of the operating income of the Company. Any accrued and unpaid dividends shall be payable in cash commencing on August 31, 2024 and continuing each annual anniversary of such date on a perpetual basis.
As of September 30, 2023, DSS and its affiliates owned, in the aggregate, 24,821,089 shares of the Company’s Class A Common Stock. 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 Executive Chairman of the Board of Directors of the Company. Mr. Thatch serves as President, CEO and Vice Chairman of the Board of Directors of the Company.
American Pacific Bancorp, Inc.
On JuneSeptember 15, 2022, Linden Real Estate Holdings, LLC,Sharing Services, through one of its subsidiaries, entered into a wholly owned subsidiary of the Company,secured real estate promissory note with American Pacific Bancorp, Inc. (“APB”), a subsidiary of DSS, and the Company entered into a Loan Agreement pursuant to which APB loaned the Company approximately $5.7 million.million (the “APB Loan”). The loanAPB Loan bears interest at the annual rate of 8%, matures on DecemberSeptember 1, 2024, andis payable in equal monthly instalments of $43,897 commencing on July 1, 2022 (with the remainder due on September 1, 2024). The loan 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.APB on September 17, 2022. APB is a subsidiary of DSS. Heng Fai Ambrose Chan, and Frank D. Heuszel and John “JT” Thatch, each a Director of the Company, also serve on the Board of Directors of DSS, and Messrs. Chan and Heuszel also serve on the Board of Directors of APB.
On August 11, 2022, the Company executed a revolving credit promissory note with APB (“the APB Revolving Note”) pursuant to which the Company has access to advances with a maximum principal balance not to exceed the principal sum of $10$10.0 million. The APB Revolving Note is collateralized by the assets of the Company, and it bears interest at the annual rate of 8% and such interest shall be due and payable quarterly as it accrues on the outstanding balance. Interest payments on the loan are due and payable on the last day of each consecutive third calendar month until the maturity date of August 12, 2024. On December 9, 2022, APB and the Company mutually agreed to limit and/or end any further commitment by APB to fund or to readvance under the terms of the APB Revolving Note.Note to $6.0 million. As of DecemberMarch 31, 2022,2023, the Company had $6.0 million$1,430,459 outstanding under the APB Revolving Note.
Effective June 30, 2023 subject to the terms of an Assignment of Limited Liability Company Interests agreement, DSSI purchased the SHRG subsidiary, Linden Real Estate Holdings LLC, with the financial terms generally summarized as follows: (a) DSSI assumed approximately $7.24 million in SHRG liabilities (namely, all amounts due under the APB Loan and the APB Revolving Note), (b) DSSI credited SHRG $239,790 towards accrued interest payable under the 2022 Note, and (c) DSSI acquired ownership of Linden Real Estate Holdings LLC, with its sole asset being a commercial lot and commercial building located in Lindon, Utah, subject to the assumed indebtedness.
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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.
On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $78,636, which amount represents the principal plus accrued interest. The Company made the payment to HWH on August 9, 2022.
Capital Requirements
During the ninethree months ended December 31, 2022,September 30, 2023, there were no 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 $1.4 million which primarily relates to the purchase of the multi-user license and code for development of a new sales commissions’ platform.business.
Contractual Obligations
There were no material changes to our contractual cash obligations during the ninethree months ended December 31, 2022, except for (a) the June 2022 refinancing of our loan from DSSI (b) the June 2022 financing of our Lindon, Utah office building, and (c) the August 2022 revolving line of credit with APB, as all described above.September 30, 2023.
Off-Balance Sheet Financing Arrangements
As of December 31, 2022,September 30, 2023, we had no off-balance sheet financing arrangements.
Inflation
Prior to the COVID-19 pandemic,In recent history, inflation washas generally been low in the geographies where we operate. However, atduring the time offiscal period covered by this Quarterly Report, the increase in price of consumer goodsinflation rate in the United States has reached a 40-year high,averaged around 4%, primarily as a result of higher energy, costs, higher housing, costs, and the impact global supply chain disruptions.food costs. Please see “Our business and financial performance could be adversely affected by inflation”inflation” contained in ITEM 1A, — “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 20222023.
Critical Accounting Estimates
While the Company is not aware ofThere were no material changes to itsthe Company’s critical accounting estimates or assumptions since March 31, 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 allowance 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 - Continuing Uncertainty Regarding the Recent COVID Pandemic above.2023.
Accounting Changes and Recent Accounting Pronouncements
For discussion of accounting changes and recent accounting pronouncements, see Note 23 of the Notes to the Unaudited 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.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the fiscal period covered by this AnnualQuarterly Report, and concluded that, as of December 31, 2022,September 30, 2023, the Company’s disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management and its Board of Directors, as appropriate to allow timely decisions regarding required disclosure.
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Limitations on the Company’s Controls and Procedures. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. 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 have been detected. Furthermore, 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, 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.
In light of the 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 significant 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 all registration statements prior to their submission to the SEC.
Changes in Internal Control over Financial Reporting. Except for the remedial actions described above, duringDuring 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.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
The information contained in Note 16,17, COMMITMENTS AND CONTINGENCIES - Legal 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 Annual Report on Form 10-K for the fiscal year ended March 31, 2022,2023, are incorporated herein by reference.
Item 2. Unregistered Sales of Securities and Use of Proceeds.
None.(a) Unregistered Sales of Securities
None
(b) Not applicable
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None
Item 3. Defaults Upon Senior Securities.
None.(a) Not applicable
(b) Not applicable
Item 4. Mining Safety Disclosures.
Not applicable.applicable
Item 5. Other Information.
None.None
Item 6. Exhibits.
The following exhibits are filed as part of this Quarterly Report unless otherwise indicated:
*IncludedFiled herewith
**Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SHARING SERVICES GLOBAL CORPORATION | ||
| (Registrant) | ||
| Date: | ||
| By: | /s/ John Thatch | |
| John Thatch | ||
| President, Chief Executive Officer and Vice Chairman of the Board of Directors | ||
| (Principal Executive Officer) | ||
| Date: | ||
| By: | /s/ Anthony S. Chan | |
| Anthony S Chan | ||
| Chief Financial Officer | ||
| (Principal | ||